Little value addition to Africa's resources happens on the continent.
At any mining industry conference, the buzzwords of value addition and beneficiation never fail to take pride of place, and it was no different this year in Cape Town.
Value addition is often held up as the panacea to Africa’s industrialisation and poverty challenges — if a country is exporting raw coffee beans, it should develop factories to produce and export processed, packaged coffee instead; or manufacture steel bars instead of exporting iron ore, and so on.
Often, they are nationally-led goals, but this may be missing the mark, according to experts at the Investing in African Mining Indaba.
Instead the market, not nationalistic sentiment, should determine what steps are taken towards enhancing the value of resources and earning more revenue.
“Most of the times we have rushed to put [in place] value addition policies such as export bans and levies even if they don’t work, yet domestic markets cannot absorb them,” senior industry advisor at the African Union Commission Frank Mugyenyi said.
Several African countries restrict trade in exports through measures ranging from taxes and quotas to requirements on local ownership and outright bans, according to the Organisation for Economic Co-operation and Development.
But Mugyenyi said that value addition must be viewed from the perspective of making a business case and not as “affirmative action”. A country’s competitive advantages, and not pride, should be weighed before setting up processing plants.
Namibia for example processes some of its gold in South Africa as it did not make business sense to build plants back home, the AU official said.
Egypt, South Africa and Morocco, which do not produce any green (unroasted) coffee of their own, make more money re-exporting value-added coffee — ironically sometimes back to the continent — than most primary African growers.
Value addition could also in some cases be better done at sub-regional level, the meeting heard.
Economies of scale would be a consideration in this, such as the setting up of clusters. America’s famed Silicon Valley actually owes its origins to this; while Ethiopia’s increasingly renowned shoe production industry was created along this path. Such approaches would help push the continent towards more labour-intensive economies. “I still believe the best way for Africa to create jobs and wealth is through industrialisation,” said Mugyenyi.
The continent has been making some progress towards this goal.
Ivory Coast is among the countries to watch with regards to value addition. The world’s largest cocoa producer in May opened its first industrial-scale chocolate factory.
The numbers appeared to support the case: “brown gold” accounts for a fifth of Francophone Africa’s largest economy, more than half of exports and two-thirds of employment, according to the World Bank.
A growing middle class following its post-civil war gains is also providing a large, captive, domestic market.
Fellow producers Ghana and Nigeria could look to develop partnerships with the country, so it will be easier to make a business case for the financing of such projects.
Botswana’s reinvestment of its natural resources cash was held up as an example of prudent use of finite mining revenue. The southern African country’s policy essentially hinges on investing the entirety of mining proceeds into education, health and infrastructure.
Thirty-nine percent of its revenues come from mining, but the real story of its success has been the linkages of the business with the country’s social obligations.
“You cannot have one existing without the other,” said Mpumi Zikalala, senior vice-president at De Beers South Africa, speaking of the need to rid the perception of mining as an enclave — an industry with few links to its source.