Straight talk

The role of the private sector in developing economies: a force for sustainable good?

Mike Jones, Head of External Communications, African Minerals, gives the Keynote Address at the West Africa Mining Investment Summit, London, 3 June 2013

There is a new paradigm emerging in the global iron ore industry, with increased interest in the iron ore deposits in the equatorial regions of West Africa.

West Africa is ideally placed for seaborne trade, offering significant advantages over Brazil into Europe, and competing, almost down to the day, on the Brazil to Asia routes. There is now a plethora of international companies that are seeking to develop significant assets in this region.

However, within West Africa there are still major hurdles – especially those of access to capital and construction of major infrastructure. Political stability in the West African region has, until recently, been volatile but the recent third set of peaceful elections in Sierra Leone demonstrate that things are starting to change.

Facing global policy change

The international community has been outspoken in recent years on the best way to develop natural resources projects to ensure that benefits are fully felt by host nations and the communities affected by extraction.

The UK Presidency of the G8 summit in Lough Erne, Northern Ireland, later this month is prioritising transparency and accountability in the minerals sector to encourage global economic growth. However we must all address what steps should be taken to ensure that the necessary foundations are in place for the longer term growth and prosperity for generations to come.

Last month, the Africa Progress Panel, led by Kofi Annan, published its progress report for 2013. It commented that Africa is standing on the edge of enormous opportunity, but still questioning whether Africa will successfully re-invest its resource revenue in its people, generating sustainable jobs and education.

A key building block of ensuring this re-investment is the European Union’s Accounting and Transparency Directives. It will require all EU listed and large privately owned oil, gas, mining and logging firms, to disclose ALL payments they make to governments over Euro 100,000.

This disclosure, and the Extractive Industries Transparency Initiative, is designed to provide the citizens of those emerging countries with the facts they need to hold their own governments to account. 

They ensure that the right systems, policies and procedures are in place to empower citizens and national supervisory bodies to track these revenues.

Private sector – partner of choice

Several intervention techniques are evident in the West African Region – the US strategy is typically one of lobbying and engaging directly with governments, while the Chinese strategy is one led by creation of regional infrastructure.

We believe that it is the private sector, along with governments, that will have the best impact in translating the wealth gained from natural resources into significant sustainable development.

Due to post colonialism and subsequent independence, many countries in the region have not had the benefit of modern exploration techniques, and it is the private companies that are typically the ones making the major discoveries, both on and offshore.

With new exploration revealing much larger reserves than previously envisaged, Africa stands to reap a natural resources windfall.

Iron ore development, is driven principally by infrastructure – there is no shortage of iron ore anywhere in the world, but key is getting it to export in a cost-effective manner.

The capital hurdles for infrastructure are huge, and this leads to collaboration between equity markets, debt markets, and various forms of partnerships.

African Minerals for example has used such avenues of capital to raise just under US$2 billion to build its iron ore project since its discovery, along with $1.5 billion through its Chinese partner Shandong Iron and Steel Group in March last year.

Once the capital hurdle has been cleared, with Foreign Direct Investment usually following, there are significant long-term legacies to be had in what are often multi-generational assets.

Direct employment on the mines is only the tip of the iceberg for sustainable development.

There are further direct drivers spurred by the increased level of overall activity in the form of hospitality industry; rail, road and ferry networks; strengthened civil service functions such as customs; and so on.

And the activities themselves have indirect benefits in requiring such additional basic industries as building supplies, foodstuff, clothing, agriculture etc.

And to support the skills requirement, knock-on effects occur in services, health, education and training.

At a national level there is the benefit of licensing fees, royalties, income tax and personal tax, which are the subject of the Transparency Directives.

But these elements also have their own multiplier effect, attracting additional Foreign Direct Investment, as well as social and environmental development programmes.

Such changes will lead to a distribution of wealth, which is a key dimension of any partnership approach and will be a catalyst for economic growth.

Partnering with African governments

In 2011 nearly US$36 billion of donor countries aid was spent in Africa. One of the benefits of investments such as ours into these regions is a building of internal capability and skills, enabling governments to refocus public funds on other priority development areas and reducing reliance on aid.

Our transition has not been overnight. We have been active in Sierra Leone since 1996, and with our Tonkolili project since 2008.

Our iron ore project covers a port, a rail and a large mining area, and impacts several communities along the footprint.

In such an operating environment it is essential, not only to have strong relationships with the host countries, but also to have strong relationships with the local stakeholders.

The EITI and other directives, implemented properly, will create openness and transparency that will in turn lead to a stable fiscal environment and a consistent application of law.

And stability in Law and Policy will itself attract additional investment.

This transparency also allows citizens to see how they themselves are benefiting from the extraction of their resources and, together with the social and environmental programmes, protects the operating companies’ social licence to operate – and that is key for any asset, and especially a multi-generational one such as ours.

Sierra Leone

Extraction of natural resources is often initially an impactful process, sometimes requiring relocation of communities. It is imperative that this extraction goes hand-in-hand with tangible benefits that are visible to the communities affected, and which are sustainable even beyond the life of the project.

Our host, Sierra Leone, has even more cause for heightened levels of sustainable development.

The terrible civil war that prevailed until 2002, created a generation with no education, crushed infrastructure networks, and destroyed aspects of government, all of which led to crippling poverty that is only now starting to see an improvement.

But public companies such as ourselves, and others including London Mining, Cape Lambert, Amara Gold, Sierra Rutile and many others, are starting to have a positive impact, aided to a very large degree by the support of the government and the steady progress that it is itself making.

Conclusion

The global operating landscape is evolving for the extractives industry, and international transparency directives will help to ensure that revenues from the minerals sector are applied to the good of the host nations.

But the private sector is, we believe, key to unlocking those revenues and benefits.

Fair value deals, fair taxation structures, and consistent and stable application of laws, are all things that governments can do to attract international businesses.

But corporates must also stand by their obligations in both fiscal terms and in the non-fiscal terms, sticking to the promises they make to both communities and governments.

The multi-generational assets in West Africa need more than just the correct fiscal framework, they need to be developed in a sustainable multi-generational manner.

And that requires that sustainability is an inherent core value of the companies that will lead the development of the industry.

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