Business

Africa, stop digging holes for the West

Roman Grynberg

Africa must disregard outsiders' self-serving advice about managing its natural resources, writes Roman Grynberg.

Allowing raw minerals to be sent overseas for beneficiation does not help an African country achieve transformation or diversification of its economic base.(Gallo)

For at least two generations, African leaders and policymakers have recoiled from the 300-year model of African natural-resource development. Simply put, the model was based on Africans, originally as slaves and later as paid porters, carrying ivory to the coast for ­Europeans and Asians to cut and process.

The products may have changed, but not the model. Despite the fervent desire of African policymakers to add value to raw materials, whether it is copper, gold or coffee, it has simply never materialised.

Yet despite this experience, the notion of adding value to raw materials remains an article of faith in Africa and almost all national and regional industrial policy statements make some mention of it.

Early attempts at downstream processing or beneficiation in Africa usually failed because few understood the extent of the challenge and cost in penetrating the value chain But even where it has succeeded, beneficiation has been heavily criticised because it has proven to be at best an expensive exercise that has led to nothing but disconnected export enclaves that have not established a development process.

This is certainly true of the Namzinc refinery in Namibia, as well as Mozal aluminium in Mozambique, where refined base metals are produced largely because of cheap electricity and tax-free environments with little connection ever being developed to the rest of the economy, particularly no forward connection.

Spurred by rising commodity prices over the past decade, resource-rich developing countries have moved to increase the benefits from mining accruing to their countries.

One of the policies has been to use export taxes and restrictions to increase domestic processing. Indonesia, for example, in 2012 told base-metal miners that they must move from exporting unprocessed base metals to producing processed products or it would impose a 20% export tax on 65 unprocessed products. This export tax was going to rise to 50% in 2014 before a complete ban on unprocessed base metals was imposed by 2015, but the Indonesian Supreme Court struck down the provision last December. The government, however, has made it perfectly clear that it has no intention of backing down and will rewrite the provisions in a manner consistent with the law.

Conspiracy against Africa
Now the World Bank, the Organisation for Economic Co-operation and Development (OECD) and even the African Development Bank, along with a gaggle of well-funded think-tanks, have developed a more subtle approach to keeping Africa in its place on the raw-materials end of the value chain.

Their policy advice stems not from a conspiracy against Africa, but rather from a genuine belief that developing countries are simply unable to break out of their current place on the commodity value chain. The old view – that you start, for example, with copper concentrate and then produce cathodes, followed by semifabricates, and move on to use these in manufacturing – is seen as no longer  possible, because each step requires skills and resources that are unavailable in most African countries. The value chain has become so complex and so blocked that downstream penetration just will not work.

In the recent case of Zambia, the World Bank in 2011 produced a report attacking that governments' ongoing attempt to add value to its copper. It has, together with UK Aid, advised Zambia that adding value to copper is not worth it, it will get few jobs, no one will buy its copper semifabricates and it does not have the other resources such as nickel and metal scrap. What is more, Chile, the world's biggest producer of copper, sells almost no fabricated copper products and therefore Zambia should not even try.

Recently, the OECD and African Development Bank researchers told African countries that they should export copper concentrate and not even try to go as far as producing pure copper cathode because the Chinese have massively invested in refining and smelting capacity, making competition next to impossible. At no point, of course, does the World Bank ask whether value addition would work if the Zambian state behaved like Indonesia and imposed a World Trade Organisation (WTO)-compatible export duty tax on unprocessed copper concentrate. Or, what if Zambia was able to work closely with Chinese or Indian firms that do produce semifabricates so that there was a way of exporting more processed copper products?    

Those who are opposed to value addition in Africa argue that Africa  should simply export unprocessed raw materials and use the revenue this generates to educate people and develop sectors in which they have a comparative advantage. The only connection to the mining sector should be through upstream connections such as inputs into the mining process. Put in other words, Africans should be working to make their "ivory porters" more efficient.

Of course, this model, proposed by the think-tanks of the international community, is precisely the path that was taken by Botswana with its enormous diamond resource base. For three decades, it tried to develop a good environment for business to invest, and used diamond revenue to educate its population and give them good healthcare and a decent infrastructure, just as it was told. It abandoned any major subsidies to industry more than a decade ago.  

Economic growth
And what happened? Almost nothing. Over the past decade, the country has experienced economic growth, but has remained with a stubbornly high 18% rate of unemployed and no real transformation or diversification of its economic base.

That was until Botswana decided that exporting jobs to Europe and India by "carrying the ivory to the coast" was simply not a sustainable development model. It has begun to work with De Beers and its sightholders, telling them that diamond buyers need to process a part of their diamonds in Botswana. This has created the country's largest manufacturing industry with 3 200 workers, which is not insignificant in a country of two million.

But if the soft power of what now passes for "solid economics" does not convince deluded and recalcitrant African policymakers to keep selling unprocessed raw materials to the developed world and China, then there exist harder instruments of economic power.

The WTO prohibits the sort of export bans considered by Indonesia or used by China to prohibit the export of vital commodities such as rare earth. But although it does not prohibit export taxes as an instrument, the European Union does in its trade agreements. In the economic partnership agreements that much of Africa is about to sign with the EU, there are prohibitions of the use of export taxes.

The future of Africa belongs to those who refuse to continue to dig holes in the ground to make others rich, to those leaders who know their economics, understand the value chain and the high price that will need to be paid to work with business to move down those value chains to where people have productive and meaningful jobs.

Those who try to sell development models to 55 fragmented African countries with almost one billion people and relatively small national resources, based on the experience of small countries with giant natural-resource bases such as Australia, Canada and Chile, are peddling illusions.

These are the views of Professor Roman Grynberg and not ­necessarily those of the Botswana Institute for Development Policy Analysis where he is employed

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