lithium

There are many elements that feed into a system of governance that can successfully convert mineral and oil revenues into shared wealth for its citizens.

These elements cover the entire value chain from how a government drives exploration, how it conceptualizes its strategy for the exploitation of mineral resources, the extent to which it can effectively oversee the industry and how it eventually spends the revenues generated from these resources.

covid-19
AUTHOR: Selina Zhuwarara

Following from the same, one of the most important elements in the governance of extractive industries is how mineral rich governments use the revenues they receive from resource wealth.

This element is at the heart of how soon the objectives of the African Mining Vision can be realized from the wealth that the continent possesses.

Webinar recording:
Downstream opportunities in Nigeria’s mining sector

Resource rich countries in Africa receive substantial foreign exchange income from their mineral, gas and oil exports however, in the midst of battling with immediate budgetary pressures and ailing economies and poverty, the anticipated impact of these revenues can easily become dissipated.

It remains unfortunate to note that whilst the continent possesses a formidable array of resources it still battles with rudimentary socio-economic challenges in some of its countries.

These challenges include stunted economic growth, poor infrastructure, inequality, poverty and a diminished the quality of life of its people. This situation draws attention to the importance of further improving the use and deployment of resource revenues in tackling the challenges of the day.

Once taxes, dividends, licensing fees, levies and rents have been received into treasury coffers, the ability to convert their latent potential into transformative and progressive development is wholly dependent on the quality of decisions made towards their use and deployment.

One of the most potent pitfalls in the management of resource revenues is the deployment of these revenues towards non-distinct and non-productive government expenditure.

When these funds are submerged into the general pool of government income, they will achieve some good but will not be able to deliver the transformative change that is required to eradicate the developmental challenges faced by most African countries.

Transformative development is a result of a more targeted and directed deployment of resources towards specific elements that drive growth and equity within the economy and social framework.

The effect of resource wealth should be to spur economic diversification, improve infrastructure, to improve the quality of life experienced by citizens and to drive social development. 

The success of Norway in the management of its oil funds lies with its dedication to continually enhancing the economic infrastructure of the nation and the quality of life of its citizens whilst also saving for the future.

This has resulted in the accrual of significant social capital as well as an attractive investment environment that has allowed for further diversification of their economy. The Fund has managed to support and maintain the country’s welfare and social development initiatives admirably.

They have managed to achieve this by intentionally and consistently allocating their oil wealth to high impact social and infrastructure development projects.

They have also managed to sustain the Funds’ profitability by being disciplined in depositing oil revenues into the Fund frequently and limiting their utilization of the Funds’ revenues to only a percentage of the net returns generated from the investments.

Likewise, resource rich counties in Africa must adopt the same focus and motivation to use resource revenues to target high impact projects that improve social and infrastructure development in their countries.

There are two notable principles from Norway’s experience, that is, firstly to primarily treat resource revenues as capital which must be deployed for the generation of further value and secondly to ensure persistent and consistent focus on furthering social progress.

There is a current lack of social capital in the mining industry in Africa which is evidenced by the continued rise in tensions and pressure from communities and citizens seeking increased accountability and direct participation in the activities of the sector.

The past few years have seen increased requests for direct shareholding by communities or calls for direct revenue sharing between mining entities and communities.

Whilst there is always a strong independent need for increased social awareness and participation from the business community in environmental and social governance issues; the pressure from communities speaks volumes to the existence of discontentment in how revenues from this sector are allocated and utilized.

It is generally reflective of the low degree of confidence that communities or citizens have in their governments’ ability to serve, preserve or further their interests hence the request to receive their own separate and direct stream of revenue from mining projects.

For this reason, it is important for resource rich countries to increase the visibility and use of resource revenues to advance social development on the continent.

Africa has approximately 20 reported sovereign wealth funds which are supported by resource wealth, the most predominant being Funds established from oil and gas revenues.

The largest non-petroleum sovereign wealth fund on the continent is the Pula Fund which belongs to Botswana and is supported by the country’s diamond wealth.

Sovereign Wealth Funds are always a positive development as a strategy to manage resource wealth and are mainly created as a reserve for budgetary and macroeconomic stabilization as well as creating savings for future generations.

However, in the face of crippling social and economic challenges, it is important to broaden the ability and capacity of these Funds to lead and participate in the investment of key infrastructure development projects across the continent.

It goes without saying that economic diversification in many African countries is hindered by poor infrastructure, energy and water deficits, high costs for internet connectivity and lack of skilled labour.

These challenges have even made it difficult for Africa to pursue meaningful beneficiation of its resources and have dampened efforts to strengthen intra-African trade. Resource revenues can play an important role in addressing the infrastructure deficit if their scope is broadened to play a more prominent role in development financing.

The African Mining Vision has set solid and progressive objectives to guide policy and governance around managing resource revenues. The only way to achieve these objectives is to intensify the allocation of resource revenues to development financing.

It is increasingly clear that there are limited financial reserves to go round as international financing institutions struggle with the pressure emanating from the COVID- 19 pandemic and its impact on the global economy. Africa will have to increasingly look to its domestic resources and capacity to rebound and meet its development milestones.

Read more about COVID-19

There is a lot of room for the extended role of resource revenues in development at both national level and in championing regional and continental projects that improve the infrastructure and the livelihoods of people.

The best legacy that resources can create in Africa is to bequeath functional economies, eradicate inequality, provide a decent quality of life and adequate infrastructure to support further diversification and industrialization of economies.

This can only be attained by applying discipline and commitment to maximising the utilisation of current resource revenues streams to support strategic and high impact socio-economic projects.