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 in too many contexts on the continent, mineral wealth is correlated with underdevelopment. 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 column on, but also for the energy and transport revolutions that are underway.
If these trends hold, developed countries are going to try and secure access to African resources, which technically means that African countries have an opportunity to secure for themselves a place in global value chains. In other words, 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 the structural transformation of African 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 (GVCs) is limited to the supply of metals and minerals. The countries of sub-Saharan Africa trade little with each other, and regional value chains (RVCs) 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 remain, these emerging dynamics now deserve more detailed investigation.”
One of the “promising new developments” has been the creation, on paper, of an African Continental Free Trade Area (ACFTA). But it is hamstrung by practical 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 that is relatively more efficient at copper production than wine. This is obviously an oversimplified view of the logic, 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 then to transport them efficiently to their destination. But sometimes even internal transportation systems are so poor that countries cannot move grain from one side of the country to another, never mind cross-border transport. When the private sector in South Africa, for instance, indicates that logistics (freight rail, the governance and management of ports, etc.), energy deficiencies, and rampant crime are the three primary blockages to investment in the country, one fully 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 column.
While the ACTFA is a positive development, one “serious obstacle” to progress on the continent is democratic backsliding. The econometric evidence is clear that sustained transitions to democracy produce significant economic growth gains over their autocratic counterparts. This is simply because democracies, for all their flaws, are better at holding elites to account for unsatisfactory performance and can thus ensure that 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 vs 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 the recent coup contagion across West Africa, and some countries even leaving ECOWAS (Economic Community of West African States), the 2023 results are not likely to 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 any authoritarian regime. At Good Governance Africa, we work hard to influence better mineral policy formation and stronger industrial policies that connect mining to global value chain opportunities. We also advocate for a stronger and more functional ACFTA, 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 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.
A recent journal article that my colleague Pranish Desai and I wrote suggests that 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 that 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 will remain a pipedream.
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 that they have an important role to play in expanding citizen voice in the contexts in which they operate.
- This article first appeared in Mail & Guardian on 9 February 2024.
Dr Ross Harvey is a natural resource economist and policy analyst, and he has been dealing with governance issues in various forms across this sector since 2007. He has a PhD in economics from the University of Cape Town, and his thesis research focused on the political economy of oil and institutional development in Angola and Nigeria. While completing his PhD, Ross worked as a senior researcher on extractive industries and wildlife governance at the South African Institute of International Affairs (SAIIA), and in May 2019 became an independent conservation consultant. Ross’s task at GGA is to establish a non-renewable natural resources project (extractive industries) to ensure that the industry becomes genuinely sustainable and contributes to Africa achieving the Sustainable Development Goals (SDGs). Ross was appointed Director of Research and Programmes at GGA in May 2020.