Dig deep: The writer says authoritarian regimes are more likely to ensure profit from mining goes only to elites than democratic ones. Photo: Per-Anders Pettersson/Getty Images
The 30th Invest in African Mining Indaba was held in Cape Town this week.
It is no secret that Africa is abundantly blessed with mineral resources. It is, similarly and sadly, no secret that mineral wealth on the continent is correlated with underdevelopment.
Many mining companies are making considerable efforts not only to improve the lives of citizens in their host communities, some are even trying to persuade governments to adopt best-practice mining codes.
But the unspoken risk is codes become only as strong as the particular leader in power at any given time. A more systemic and sustainable solution is to strengthen democracy itself, as this is the bedrock on which the long-run protection of property rights ultimately rests.
Global demand for copper, cobalt, lithium, titanium, and every mineral you’ve not yet heard of, is going to multiply in the decades ahead. This is not only for parts for the iPhone you’re probably reading this on but also for the energy and transport revolutions that are underway.
If these trends hold, developed countries are going to try to secure access to the continent’s resources, which technically means countries have an opportunity to secure themselves a place in global value chains.
Well-governed, mineral-wealthy countries, with sensible mining and industrialisation policies, could move out of the commodity-export trap and add value internally before exporting — or at least connect mining to other economic sectors.
The Africa Mining Vision, which was launched in 2009, certainly envisaged structural transformation of the continent’s economies through its mineral endowments.
A 2019 book to which I contributed opens with the following lines: “Sub-Saharan Africa is reasonably integrated into the global economy — but not on favourable terms. It still by and large exports primary commodities while importing manufactured goods and high-value services. The region’s role in manufacturing global value chains is limited to the supply of metals and minerals. The countries of sub-Saharan Africa trade little with each other and regional value chains are, for the most part, undeveloped. Nevertheless, since the turn of the last century, stronger economic growth and closer political integration have led to promising new developments and a more optimistic outlook. While serious obstacles still remain, these emerging dynamics now deserve more detailed investigation.”
One of the “promising new developments” has been the creation, on paper, of an African free trade area. But it is hamstrung by obstacles such as inefficient border posts, marred by petty corruption, causing delays in the transport of key goods.
It is similarly undermined by a relative lack of comparative advantage between countries within the region, which makes trade difficult.
Comparative advantage is the basis for global trade. If I am relatively better at producing wine, the logic goes, than copper, then I should abandon the latter and focus on the former. I can export my wine and import my copper from a country which is relatively more efficient at copper production than wine.
This is obviously an over-simplified view, but that is how trade generally works, and so creates global gains.
For the model to work, it requires countries to be able to optimise the production of those goods they are relatively better at producing and to be able to transport them efficiently.
But sometimes even internal transportation systems are so poor that countries cannot move grain from one side of the country to another, never mind across borders.
When the private sector in South Africa, for instance, indicates that logistics (freight rail, the governance and management of ports), energy deficiencies and rampant crime are three main blockages to investment in the country, one understands why.
Unless these things are addressed, not only in South Africa but across the continent, investment is unlikely to be forthcoming; certainly not responsible investment, which is a subject for another day.
While the free trade agreement is a positive development, one “serious obstacle” to progress on the continent is democratic backsliding. The econometric evidence is clear sustained transitions to democracy produce significant economic growth gains over their autocratic counterparts.
This is because democracies — for all their flaws — are better at holding elites to account for unsatisfactory performance and can thus ensure broad-based development occurs.
The latest data is not yet out, but the Economist Intelligence Unit’s Democracy Index for 2022 indicated that sub-Saharan Africa had scored only 4.14 on the index versus a global average of 5.29. The only area that scored lower was the Middle East & North Africa, which came in at 3.34.
Deeply concerning, though, is that 23 of the world’s 59 “authoritarian” regimes are in sub-Saharan Africa, while the Middle East & North Africa only boasted 17.
With coup contagion across West Africa, and some countries even leaving the Economic Community of West African States (Ecowas), last year’s results won’t paint a prettier picture.
So, what does democratic backsliding have to do with mineral wealth and structural transformation? The bottom line is that authoritarian regimes have every incentive to ensure that mineral rents flow only to elites at the expense of citizens.
The transaction costs of reform are typically higher than the costs of repression in elite calculus. Mineral rents fund patronage, co-optation and repression ability, the three cornerstones of authoritarian regimes.
At Good Governance Africa, we work to influence better mineral policy formation and for stronger industrial policies that connect mining to global value chain opportunities.
We also advocate for a stronger and more functional African Continental Free Trade Area but these arguments are meaningless in contexts where a large segment of citizens do not have a voice. In those contexts, elites will continue to do what they will.
As Ancient Greek historian Thucydides put it, “The strong do as they will and the weak suffer as they must.” Elites whose power is unconstrained by institutions and citizen strength will continue to take money from, and do business with, other unscrupulous powers.
An article by my colleague Pranish Desai and I suggests Dutch Disease — one manifestation of the resource curse — is at play in southern Africa.
Dutch Disease is the phenomenon by which a heavily mineral-dependent economy can crowd out manufacturing competitiveness through high currency values or by drawing resources away from other sectors.
Ironically, the way to heal the disease is to ensure an appropriate policy framework catalyses mining as a flywheel for industrialisation.
In the absence of democratisation gaining renewed strength, however, that kind of structural transformation is likely to remain a pipe dream.
How to strengthen democracy was not a large part of the Mining Indaba deliberations but increasingly mining investors and firms would do well to see they have an important role to play in expanding citizen voice in the contexts in which they operate.
Ross Harvey is the director of research and programmes at Good Governance Africa.