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3 Mar 2015

Fola Adeleke, Head of research: Mandela Institute, School of Law, University of Witwatersrand

Mining investment, community development, natural endowments and state regulation: what is lost?

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Arriving from Johannesburg mid-morning on the 9th of February to attend the Investing in Mining Indaba in Cape Town, I was in a hurry to clear the airport to attend the first panel session.  A quick stop at the restroom stalls yielded the most unfortunate result: the two minute separation from my bag was sufficient time for it to be stolen from the trolley I left outside.

Baffled at such opportunistic crime taking place with such audacity in a public space, I reflected on the rhetoric of mining and its significance in Africa particularly for communities where there have been justified or misplaced emotive contentions about companies robbing countries of natural resources while the state watches and permits such conduct.

It is no longer news that civil society organisations and communities have developed an Alternative Mining Indaba as a response to what has been labelled the elitist nature of the official Mining Indaba, due to the exorbitant fees payable for registration and the prioritisation of investment negotiation and deal-making over issues such as sustainable development and the role of mining in socio-economic development.

As an academic researcher, I had the privilege of attending both the Investing in African Mining Indaba and the NGO-convened Alternative Mining Indaba. This presented me with an opportunity to engage with the different – largely contradictory – narratives used by the mining sector on the one hand and NGOs and affected communities on the other to discuss the value of mining in Africa. Among conversations occurring within and between the two indabas, I identified five outcomes.

The first relates to the balance between the ambitions of extractive companies on the one hand and the development goals confronting governments on the other, for which tax payments and other fees are a necessity – not forgetting communities who experience the impact of mining and also have legitimate expectations regarding development.

The CEOs of various extractive companies at the Indaba expressed optimism about the opportunities for mining in Africa. They provided data that supported their claim that investment is pouring into Africa despite the numerous governance and infrastructural challenges and other impediments to ease of doing business confronting many countries. The question this raises is why Africa remains attractive to mining investors despite these challenges. Aside from the abundance of natural resources that are available for exploration, perhaps, cynically, it is precisely this lack of good governance which allows companies to renege on contractual obligations, and to take advantage of the lack of oversight and tax in respect of tax payments due to states as well as numerous incentives offered to companies by states to conduct business.

At the exhibition hall of the Indaba, several African countries set up stalls under the auspices of their trade ministries to showcase the opportunities for extractive exploration. While extractives remain central to the value of foreign direct investment to most African countries, it is important to balance the wealth creation generated for companies and states with the poverty reduction imperatives necessary at the ground level, particularly for communities.  

The second outcome that preoccupied both indabas was the question of transparency in the extractives sector. There was extensive support for the view that what is required, in addition to good governance, particularly with respect to the political economy of mining and the importance of eliminating corruption on the part of the private as well as the public sector, is the promotion and adoption of initiatives such as the Extractive Industry Transparency Initiative (EITI). This call was reiterated by the World Bank and Investing in Mining Indaba keynote speaker, Tony Blair. Transparency was cited as necessary to ensure that all stakeholders, including the State, extractive companies, investors, labour as well as communities get the maximum benefits of mining exploration. While various countries such as Nigeria, Ghana and Zambia have signed up to the Extractive Industry Transparency Initiative (EITI), other countries, including  South Africa, have not seen the value in signing up to such international practice -- perhaps due largely to a misplaced confidence in the strength of the domestic regulatory framework.

However, globally, states are increasingly embracing disclosure practices that promote the disclosure of payments by extractive companies on a country–by-country and operational or project disaggregated basis. The US Dodd Frank Act as well as the EU Transparency and Accounting Directives recently adopted by the UK and France are examples of such approaches. The recently released AU report on Illicit Financial Flows similarly recommends the adoption by African states of extensive disclosure requirements, which also extend to transparency of contracts. It is about time that countries such as South Africa recognise the importance of such initiatives to curb illicit financial flows.

The third outcome relates to local benefits: managing the expectations of citizens, while also improving the participation of local businesses in the extractives supply chain and developing and enhancing productivity and skills. Certainly, African countries, through the AU’s African Mining Vision, recognise the importance of developing local benefits. It is important that countries adopt an approach where companies are not expected to adopt the business as usual approach of corporate social responsibility but one of cooperative governance with the state and community leadership structures such that development priorities are identified and implemented by these collective structures. Such an approach should also necessarily involve the transfer of skills that are useful after the life of a mine.

The fourth outcome relates to the importance of “giving to Caesar, what is due to him”, in other words ensuring the payment of fair taxes, and robustly addressing tax avoidance and profit shifting, which contribute to illicit financial flows by extractive companies from developing countries. To tackle this problem, in addition to adopting global initiatives such as the EITI mentioned above, steps should also be taken toward implementing it, which relates to the fifth outcome called for by the indabas, namely the prioritisation by governments of effective regulation and  oversight in respect of extractive corporations.

Too often, there are regulatory gaps in legislation that result in loopholes exploited by companies to avoid their obligations to host states. From the indabas, it is apparent that there is a growing recognition of the importance of building not only the capacity of states but of civil society to more effectively hold corporations accountable. This would help realise the vision articulated by Graca Machel in her keynote address on the last day of the official Mining Indaba: that we should measure growth not only in terms of financial returns but also by the level of development, sustainability and equity.

Ultimately, to achieve these laudable outcomes, it is important for different stakeholders to collaborate and play complementary roles to overcome barriers to growth. This can be achieved inter alia through the adoption of transparency as a proactive imperative, reviewing the quality and suitability of national legal frameworks, placing emphasis on the development of trust by communities in extractive companies and trust between the companies and the state. This trust, as one of the speakers at the Indaba stated, should be about companies working to earn it by paying fair tax contributions, and ensuring procedural fairness, accessibility of corporate information, and upholding the respect and dignity of communities in particular through sustained engagement and community participation.