African governments need to work with international mining and resource firms to ensure that African countries maximize the benefits from the current commodities boom, leading academics have urged.
Three leading economists have challenged the conventional wisdom that giving resource extraction rights to mining giants minimizes the benefits for the host country’s economy,
Professors Mike Morris and David Kaplan of the University of Cape Town, and Raphael Kaplinsky of the UK’s Open University have launched a programme aimed at encouraging African governments to work with multinational resource companies.
They want them to deepen linkages with local suppliers and companies, thereby ensuring that the profits and labour opportunities provided by commodity production trickle down further into local economies.
“It’s assumed that mining and commodity companies have no interest in local linkages, but the reality is that if firms can find local partners and suppliers to conduct work outside of their core competencies, they love it,” Kaplinsky told Emerging Markets.
“Most NGOs and academics say that mining companies are milking local economies, but that’s simply not true. Anything that’s not in their core competency, they are delighted to outsource to local firms, so governments need to make sure that they provide the environment and incentives, but also push the companies for this to happen.”
The professors, who say they are not backed by funding from mining firms, will present the findings of the Making the Most of Commodities Programme at the annual meeting of the African Development Bank (AfDB) today.
They say feedback from policymakers, multinational companies and development organizations such as the World Bank and World Economic Forum and senior executives at Anglo Coal, AngloGoldAshanti and Barrack, over the last 12 months was extremely encouraging.
They say that by making it hard for firms to gain rights to resource extraction, many African governments are failing to take advantage of the potential for “win-win relationships” with the corporate sector.
“In many countries, if a company has even 1% foreign ownership, the government sees it as a foreign company and therefore at odds with local development, and this is misguided and unhelpful,” Kaplinsky said.
He also believes the advice from NGOs and development banks and organizations for commodity-rich African nations to diversify their economies, while correct in the long-term, may be unhelpful and impractical in the short- to medium-term.
“The warnings about avoiding a resource curse and to get out of commodities and diversify aren’t very helpful for commodity-rich countries in Africa,” he said. “They may want to become diverse, value-added economies like Japan or South Korea, but starting from where they are that’s unrealistic.”
He said the emphasis should instead be on maximizing the benefits of the commodities boom, which he believes will last for at least another 10-12 years. “We’re in a new phase of history, driven by the revolutionary rise of China,” he said.
AfDB’s chief economist, Mthuli Ncube, agreed continued Chinese growth was likely to drive demand for African commodities for years to come, but has urged governments to prioritize diversification.
“I’m confident that Chinese demand will stay strong for years to come, but naturally in the interim there will be ups and downs that will impact on African countries, so the need to diversify away from commodities is an imperative,” he told Emerging Markets.