Taxing Resources, funding development

Africa is a rich continent. In 2010, the value of natural resources extracted on the African continent was $788 per capita. In comparison, development aid only contributed $30 to the income of the average African.

At the same time, the median income of an African is only $945, suggesting that a large part of the continent’s resource wealth isn’t benefiting the majority of the population. A good example is Equatorial Guinea, a country that has a GDP of $17.7 billion at a population of just 760,000 people, almost exclusively fuelled by oil windfalls. Despite this, 77 percent of the population lives below the national poverty line.

In fact, Africa is estimated to lose between 40 and 80 billion dollars per year to illicit financial flows, e.g. tax evasion, alone. Much of this money probably originates in the resource sector.

For resource rich African countries, answering the question of how to profit more from their natural resources is probably the political challenge with the highest stakes of our time.

The importance of the resource sector for the economic development of Africa will continue to grow in the coming years, thanks to rising prices and new discoveries. “We had a series of major oil and natural gas finds in Africa,” Todd Moss, a senior fellow at the Center for Global Development tells Contributoria. “Basically everybody with a coast has had a discovery.”

The OECD, the African Development Bank and the United Nations Development Programme agree. “With a comparatively high price level remaining for some time and significant expansion of production over the next years,” the organizations write in the 2013 edition of the African Economic Outlook, “Africa faces a window of opportunity to create economic structures that can provide employment and income for all on the back of its resource wealth.”

Read the rest on Contributoria!

Pickaxes into plowshares? Two visions for development in the DR Congo

The Democratic Republic of the Congo is a rich land – in theory, at least. Below its soil lie some of the world’s largest reserves of copper, cobalt, tin, tantalum and considerable amounts of gold and diamonds. It is the type of wealth that is measured in billions of Dollars and which has fuelled the industrial revolution in Europe and beyond.

In practice, the DR Congo is poor. Its population of 66 million produces only an average of 230 Dollars per year and person in goods and services, making it literally the poorest country in the world, if measured by that metric.

Little wonder that many people want to change this unfortunate state of affairs. And little wonder, too, that most of these people are looking at the wealth beneath their feet for a solution. The Congolese government, its people, the international community, international and local business – they all have high hopes for the mining sector. For them, mining, and especially large scale operations, are the ticket to a brighter future for the Congo and its people, not to speak of the profits involved.

But mining brings with it a whole host of problems. Apart from obvious issues with environmental degradation, the incredible amounts of money involved with mining projects have so far arguably done more bad than good for the Congo and despite being a major branch of the Congolese economy since colonial times, most Congolese have yet to profit from the riches that are ripped from their soil every day. Can mining really hold its promises for the development of the DR Congo, or are there alternative, better ways for the government, donors and businesses to invest in a brighter future for the Congolese people?

Read the rest on Contributoria.

Ivory Coast’s cocoa blues

Ivory Coast dominates the market for cocoa beans with a world market share of over 30 percent. But the trees and farmers producing the beans are ageing and the crop is seen as unprofitable by young Ivorians. Alternatives like rubber or palm oil vie with cocoa for the precious fertile land and are in many ways advantageous for farmers. Industry and government initiatives to shore up cocoa production will probably take decades to show their full effects. One way or the other, the Ivorian cocoa sector will undergo a tremendous transformation in the coming years, with dramatic consequences for international business, the Ivorian government and farming communities.

Read the rest on Contributoria!

Senegal’s navy acting on orders of Greenpeace?

It would be an amazing development on several levels, if it turns out to be true: The speaker of the Russian fisheries agency alleged that the “the army of the sovereign Republic of Senegal is acting under Greenpeace orders,” in stopping the Russian trawler Oleg Naydenov and arresting its crew.

The spokesman went on to accuse Senegal of “piracy on a state level” and the Senegalese charge d’affaires in Moscow was called into the Russian foreign ministry to explain the behaviour of his country.

Much of the hyped up language that this affair has produced can be attributed to the fact that the Russian media and general opinion didn’t take kindly to have its economic interests and the freedom of its nationals challenged by a tiny (in comparison) and seemingly unimportant African country. But underneath it all lies an interesting political conflict over the use of Senegal’s marine resources that has been a long time coming. And yes, Greenpeace plays an integral part in that story.

The plunder of African waters

Senegal’s authorities have charged the Oleg Naydenov and its crew with an offence well known in African waters: illegal fishing. Despite possessing long coastlines and rich fishing grounds, African states have notoriously week navies and  coast guards. For decades it has been common practice for fishing trawlers from the Americas, Europe and Asia to use this circumstance to their advantage, fishing African waters without permits and refusing to share the profits with the nations owning the territorial waters.

Additionally, single powerful nations or organisations like the European Union have often pressured African states into unfavourable fishing agreements that legalized the overuse of Africa’s marine resources.

Apart from the obvious loss of government revenue, these practices also led to economic hardship for thousands of African fishermen, who saw their catches dwindle. In extreme cases, like in Somalia, illegal fishing has also contributed to violence by creating the conditions to bring forth piracy and other illegal activities.

Changing tides

Senegal has for a while been at the forefront of asserting its national sovereignty and economic interests over its marine resources. In 2006, it cancelled its fishing agreement with the European Union and last year, the new government under president Macky Sall went a step further and asked 26 trawlers from eastern Europe, Asia and the Americas to unload their catch in Dakar and leave Senegalese waters.

And this is where Greenpeace comes in. The environmental NGO has increasingly put its resources into Africa, in no small part due to the fact that it for the first time has an African at its helm, South African national Kumi Naidoo. While South Africa also has the strongest Greenpeace presence on the continent, Senegal has been another important hub for its activities. There is now a permanent Greenpeace office in Dakar and a strong financial and professional cooperation between Greenpeacers in Senegal and Germany, the organization’s strongest national outlet by far.

Greenpeace has staged its trademark protest in support of stronger protection of Senegal’s marine life in 2012, approaching illegal fishing trawlers in small motorboats and painting them with slogans. This is also, says the NGO, the first time that it noticed the Oleg Naydenov fishing illegally in Senegal’s water.

From the distance one can’t judge how much of an effect the Greenpeace campaign had, but even if it didn’t cause official awareness of the problem, it at least correlated nicely with Senegalese policy priorities. It should also be noted that several Senegalese fishermen took part in the protests organized by Greenpeace and that local voices were very vocal in supporting the ban of foreign trawlers.

The case of the Oleg Naydenov

By taking the drastic step of arresting the Oleg Naydenov and its crew, Senegal’s government was bound to incur the ire of Russia. But the involvement of Greenpeace, even though the allegation that the move was “ordered” by the organisation is clearly bullshit, raises the stakes further.

Just a few weeks ago, it was Greenpeace’s turn to accuse the Russian government of piracy, when 30 of its activists were arrested in international waters after staging a protest against Russian oil exploration activities in the Arctic Sea. The Netherlands, the country where the Greenpeace vessel that carried the activists was registered, quickly petitioned the International Tribunal for the Law of the Sea in Hamburg, which ordered the Russian authorities to free the activists and their ship.

Ironically, Russia now wants to ask the same Tribunal to secure the freedom of the Oleg Naydenov. The outcome of this case will be interesting, as Senegal’s authorities claim that the Russian vessel was clearly in their territorial waters and also a “repeat offender”.

Implications for Africa’s marine resources

Senegal’s actions could send a strong signal to international fishing companies and other African nations alike. Ideally, if the International Tribunal for the Laws of the Sea supports Senegal’s charges, it will tremendously strengthen the legal position of African nations in such circumstances. This in turn will make it increasingly likely that other nations take action as well, investing in their naval patrol capabilities and securing their territorial waters from illegal fishing activities.

For fishing companies, having a trawler and its crew arrested is a nightmare scenario. The Russian claim that the Oleg Naydenov loses 30,000 dollars a day can’t be confirmed independently, but should offer an impression of the financial stakes involved.

On a larger scale, the incident shows the increasing self-confidence that African nations display when it comes to the protection of their economic interests. And even more positively, the increased willingness of Senegal’s authorities to protect its resources can at least in part be attributed to popular pressure and NGOs like Greenpeace. This is important, because it means that Senegal’s civil society is gaining the strength and competency to play the important role of a watchdog of corporate and government activities in the resource sector.

Full disclosure: I acted as a volunteer spokesperson for several local Greenpeace chapters in Germany and also took part in several protests supporting Greenpeace positions against environmental destruction. I have a strong positive disposition towards the organisation and its demands.

Can gold save Sudan’s economy (and regime)?

The Sudan has many problems, among them several civil wars and a host of unstable neighbours. But the biggest issue, especially from the perspective of the authoritarian government under president Omar al Bashir, may be the tanking economy.

The trouble began in earnest when South Sudan reached its independence, taking a large share of Sudan’s oil reserves with it. Later, the countries almost went into a full-blown war over the transport fees that Sudan levies on the sole pipeline leading out of the South Sudanese oil fields and Khartoum had to reduce these rates as a result.

The consequences were bitter for Sudan: the country lost more than half of its government income and two-thirds of its foreign exchange earning exports. This contributed to a massive inflation of over 30 percent since 2012. The dire fiscal situation led to deep cuts in government spending, especially concerning fuel subsidies. As a result, the country experienced the biggest anti-regime protests since the last coup d’État more than twenty years ago.

Trying to turn the situation around, the Sudanese government started to look at its considerable and gravely underdeveloped gold reserves. Encouraged by rising gold prices on the world market after the financial crisis in 2008, Khartoum decided to make gold the new oil.

This hope that gold can save the Sudanese economy and by extension the regime in Khartoum still persists:

The government is now consulting with international companies and contractors in an attempt to fill the hole left by lost oil revenues with gold exports.

Sudan’s Ministry of Minerals, which oversees all mining activity and licensing, has contracted BGS International, a company spun-off from the British Geological Survey, to help restructure its own state surveying organisation, the Geological Research Authority of Sudan (GRAS). […]

Gold is already rising in prominence in Sudan’s economic profile. In 2008 the sector represented just 1 percent of exports with a value of $112m, but this year gold will total more than $2bn in earnings, or over 40 percent of all exports. By contrast the value of oil exports has fallen to just more than 20 percent of its 2008 peak. [Gold: a glimmer of hope for Sudan’s economy – This is Africa]

But, especially compared to oil, gold has several disadvantages.

Artisanal mining and smuggling

As This is Africa rightly points out in the article linked above, a large part of the gold mining going on in Sudan happens in the informal, artisanal sector. Small-scale mining activities are hard to regulate and control, especially because many of them are located in areas which are contested between by armed groups.

As a result, the government has only limited direct income from the production and trade of the precious metal. A drive to bring more foreign investors and large-scale, formal mining operators into the country could change that, but this will take years. Meanwhile, hundreds of millions of dollars worth of gold are produced without any government interaction and much of this is probably exported informally as well.

What is gold worth, anyway?

Even if the government is able to channel a substantial part of the gold revenues into official channels, there remains the question how big the resulting pie will be that the regime hopes to distribute to quell dissent and strengthen its support base.

At the time of South Sudan’s independence, the price of gold was near it’s all-time high of 1,900 Dollars per troy ounce. It reached these record heights as a result of the financial crisis of 2008, when private and institutional investors started looking at gold as an alternative to the volatile stocks market. Gold continued to trade at record levels throughout 2012, but went into free fall in 2013, losing more than 35 percent of its value. Today, a troy ounce trades at slightly above 1,200 Dollars.

This poses two problems for Sudan: Firstly, international mining companies are already looking at cost-cutting measures. Mines that were opened or expanded in recent years are getting closed or are experiencing lay-offs in Ghana and Burkina Faso. A continued fall of world market prices for gold will greatly reduce the likelihood that mining companies will invest in Sudan. Secondly, with gold now representing 40 percent of Sudan’s export value, the direct economic impact of falling gold prices for the country is immense.

Out of the frying pan into the fire

With betting on gold after its oil revenues plummeted, the regime in Khartoum may have made a big mistake. Almost certainly, it will not be able to realise the hopes it had for expanding the business with the precious metal in the near term. With oil production in South Sudan (and the corresponding transport fees) threatened by burgeoning civil war there, president Omar al Bashir will likely be pressured to enact further austerity measures. If the pattern of the last year holds, this will lead to further protests, seriously testing his hold on power.

Conflict minerals in the Congo: a look at the new GoE report

The United Nations Group of Experts on the Democratic Republic of the Congo is maybe the authority on anything conflict related in the central African country. Tasked with briefing the Security Council twice a year on all developments related to the extensive sanctions against various actors in the DRC, their reports offer a wealth of information on everything from conflict financing to outside intervention. The upcoming report has now been leaked to African Arguments. This blog post explores the information it offers regarding the use of resources in the context of conflict in eastern DRC and elsewhere in the country.

Conflict minerals are important aspects of every GoE report, the current one being no exception. In the second paragraph of the executive summary, the GoE states that

Many armed groups in eastern DRC have derived funding from the production and trade of natural resources. […] The Group estimates that 98 percent of the gold produced in DRC is smuggled out of the country, and that nearly all of the gold traded in Uganda – the main transit country for Congolese gold – is illegally exported from DRC. […] While initiatives by OECD and ICGLR have advanced the validation of mining sites and improved adherence to conflict – free and child labor – free international standards, armed groups and the FARDC [Congolese army] continue to control many mining sites and to profit from mining and the minerals trade.

The limits of the concept of “Conflict Minerals”

It should be noted that the GoE never speaks of “Conflict Minerals” itself. The term is the invention of advocacy groups* and its implication that the occurence of minerals can prolong or even cause conflict and violence is contested.

A critical perspective on the concept of conflict minerals is supported in some parts of the GoE report. For example the group notes that the M23 – the most prolific armed group in eastern Congo during the year of 2013 – didn’t derive any income from direct involvement in the minerals trade (§32). Rather, the M23 concentrated on levying taxes on property and transport (which of course may have included mineral transports). The territory controlled by the M23 had no major mineral deposits, despite being the site of major violence and fighting during the eventual defeat of the M23 at the hands of the FARDC and U.N. troops.

This is not to say that resources, including minerals, are unimportant factors in the development of conflicts and violence. But their relevance clearly depends on the local context and this should be reflected in advocacy work and policy.

Dirty Gold

Coltan may be the best known conflict mineral from eastern Congo, but presently gold may be more important when it comes to the financing of armed groups. The GoE puts the sum lost in taxes due to smuggling of the precious metal and the corresponding profits for armed groups in the millions of Dollars – of the estimated 10,000 kg of gold mined in the DRC per year, only 180,76 kg is declared to government authorities (§170). Some of the most violent attacks by armed groups described in the report were targeting gold mining sites (for example §65).

For some armed groups, like the Rwandan FDLR and Raia Mutomboki, their involvement in gold mining and trade is their main mode of financing (§95, 168). The  limited traceability and high mobility of the mineral has resulted in an extended trade networks that reaches from small scale mining operations in eastern Congo to the Ugandan capital Kampala and onwards to Dubai in the United Arab Emirates (§198).

Gold mining is of course also an important source of income for many artisan miners who have little choice in who is benefiting from the downstream trade. With regard to this group, the myriad ways the GoE lists that are employed by gold traders to fraud their way to a larger share of the profits are highly interesting ($177ff).

That armed groups and criminal actors are able to profit from the gold trade is attributed by the GoE mainly to the reluctance of the Ugandan and Congolese governments to engage in a effective regulation of the sector. Existing laws are not enforced and known actors are allowed to act openly in eastern Congo and Uganda alike.

The three Ts

Tin, tungsten and tantalum (which can be found in the mineral coltan) are the best known conflict resources produced in the Congo. They occur mainly in the provinces of North Kivu, South Kivu and northern Katanga. Their production and trade is one of the most profitable sectors of the economy in eastern Congo and a large part of the production is smuggled out of the country via Rwanda (§200).

At several points in the report the GoE indicates the involvement of Rwandan authorities in the smuggling activities (for example §204). Smuggled ore from the DRC is tagged in comptoires in Rwanda, which hides it true origin and dramatically increases its selling price (§200). This should make clear that any certification mechanism based on “tagging and bagging” can not rely on measures solely controlled by the Rwandan government.

The lure of ivory

Showing that the use of resources to finance conflict is highly opportunistic, at least one armed group switched from poaching for ivory to attacks on gold mines, according to the GoE (§65).

Nonetheless, at least 310 elephants (and likely many more, §225) were poached in 2012 and 2013. Poaching is often done by locals in close cooperation with corrupt members of the security forces (§229). South Sudanese nationals are also heavily involved in poaching activities in Congo’s Garamba national park.

The main transit country for ivory from Congo is Uganda, its destination are usually markets in eastern Asia.

Oil: the new kid on Congo’s conflict block

Like many other countries straggling Africa’s enormous rift valley, the DRC is hoping that this geological formation may feature crude oil deposits. Uganda is already preparing to start production, while the DRC is still in the early stages of exploration. These activities are controversial mainly because of the environmental threat they pose, but the GoE also mentions some connections between the exploration activities and armed groups in eastern Congo.

Parts of exploration Block III, owned by French company Total, are for example in the area of operation of the FRPI, an armed group responsible for considerable displacement among the local population. The report (§59) mentions that Total has demanded from the government to resolve the security issues posed by the presence of the armed group, but the company declined to discuss how the situation has been reflected its social and environmental assessment of its exploration activities.

Recommendations

The GoE recommends that companies

Conduct due diligence in minerals purchase in the Great Lakes region, in addition to investing in traceability schemes.

This is mainly in accordance to the demands of many advocacy organisations. In addition, the various governments are asked by the GoE to strengthen their laws, the application of these laws and their cooperation to limit the smuggling of natural resources from the DR Congo.

My take on the information on resources in the context of conflict provided by the report is that activities of policy makers and advocacy organisations should focus on realising the potential associated with natural resources in the Congo. While minerals and other resources can be used to finance conflict and in some cases their presence contribute to specific acts of violence, they also provide much needed economic opportunities for many people in the DRC.

To achieve this goal, governments in the region as well as in Europe and America need to enforce stronger regulations regarding the circumstances under which these resources are produced and traded. Transparency is key here and companies should be forced to provide information about the conditions under which their raw materials were produced to consumers.

What are your thoughts on the report?

*According to google, “conflict minerals” were first mentioned online in 2009

 

Agriculture in Africa: Great Hopes and Great Challanges

Agriculture in Africa may prove to be pivotal in the continent’s development, much more so than oil, gas or minerals. It has the potential to transform Africa’s role in the international economy and its internal political cohesion. But this potential comes with huge challenges, because before agriculture can be transformative for African societies and economies, it needs to be transformed itself.

“Agriculture is sexy”, at least according to Bruno Wenn, managing director of German financial institution Deutsche Investitions- und Entwicklungsgesellschaft, speaking at the International Economic Forum on Africa in Paris in October. Practically all international organisations tend to agree with that statement, although it is usually framed in more technical terms.

Speaking at the same event, Carlos Lopes, executive secretary of the United Nations Economic Commission for Africa, nicely summed up the reason for everybody’s hopes for the African agricultural sector: “We have the largest reserves of arable land in the world, 60 percent, and the lowest productivity where it is already used. That results in an enormous potential to feed the world.”

A Moral Imperative and Good Business

Feeding the world is high on the international agenda because while we produce enough food for everybody at the moment — hunger is a problem of distribution, not production — this could change over the coming decades. The world population will grow by another two billion people until 2050 and with increasing wealth in countries like China and India, many more people will demand resource intensive foods like meat. While there is enormous potential in reducing food waste, increasing production will likely be necessary to ensure continuous abundance.

This makes developing the agricultural sector in Africa both a moral imperative and lucrative business. Additionally, increasing food production in Africa would have many political advantages for the continent. It would cut dependence from outside powers like the United States for basic foodstuffs, allow for a strengthening of regional trade networks and secure political stability. “Bread riots” due to high prices and governments’ inability to continuously subsidize imported grains are a common occurrence in many countries across the continent.

Apart from foodstuffs, there is also a great global appetite for agricultural commodities. Cut flowers for the European market, cocoa and coffee for the world’s café’s and cotton from West Africa all promise earnings for governments and businesses on the scale of oil and gold.

The development community is also pushing for the transformation of the agricultural sector. Africa’s agriculture is dominated by smallholders and increasing their income potential could contribute enormously to lifting broad sections of African societies out of poverty. Lastly, while economic reserves of “hard” commodities like oil, gas and gold are limited to relatively few African countries, agriculture is possible across the continent and will still be when all current oil fields have long been depleted.

Challenges Not Taken Seriously

But the transformation of the agricultural sector is also fraught with challenges that make the common “resource curse” look like a minor policy issue. And while problems associated with the extraction of hard commodities are commonly accepted and high on the international agenda by now, many issues of the agricultural sector are still treated like second-class citizens in the realm of policy making.

The raw potential of agriculture in Africa is also one of its main weaknesses. The reason for the continent’s low agricultural productivity are decades of neglect and mismanagement, reaching back to colonial times. The necessary infrastructure to develop the sector — roads, storing facilities and ports — are mostly in a desolate condition and rebuilding it will take much more investment and time than constructing that one pipeline or rail track to exploit the latest oil or mineral deposit, due to the decentralized nature of agricultural production.

For example, food worth $4 Billion is wasted in Africa annually due to insufficient processing, storage and infrastructure. This corresponds to enough food to feed 48 Million people.

African states will also need to figure out their individual agricultural strategy. Some, like Côte d’Ivoire, are already major players in producing commodities like cocoa. All countries will have to balance the temptation of producing hard-currency-earning export products with the necessity of providing basic food security for their population. A possible solution to make this policy decision less of a dilemma would be a tighter regional integration of agricultural trade and production, but this process has just started and will probably need decades to come to fruition.

Governments will also need to make policy decision about their place in global agricultural value chains. As little as 40 per cent of the world market price of cocoa makes it into the hands of cocoa farmers, for example, severely limiting the potential profit for countries exporting the raw product. Similarly to recent “local beneficiation” legislation introduced by Botswana and South Africa for hard commodities, developing policies to capture a greater share of value added on “soft” agricultural commodities needs to reside high on Africa’s political agenda to enable a true transformation of the sector.

Betting on the production of soft commodities for export also reintroduces the question of economic independence into the debate. As Bruno Wenn pointed out in Paris: “Whenever we in Europe decide to change regulations [on agricultural production] due to health policies, it might be a nightmare for small farmers in Africa to comply.”

This can turn out to be a real problem, especially because protectionism is well established in international agricultural politics. If the European Union for example decides that it needs to protect its domestic production of fruits from cheaper Kenyan exports, all it potentially has to do is change some of its regulations in a way it knows smallholders in Africa will have a hard time complying with. This type of behaviour is certainly not without precedent and presents an enormous risk for producers.

Another sensitive issue that has already made into the reports of several large advocacy organizations is the practice of land-grabbing. Commonly only discussed in the context of foreign investors buying large tracts of land in Africa for rock-bottom prices, there are also a few famous cases of African elites themselves developing a taste for land ownership. The Kenyatta family in Kenya for example is probably the largest landholder in the country and many open questions remain about the legality of these acquisitions. With prices for virtually all agricultural products set to rise on the world market, we can expect more investors — from Africa and abroad — to develop a taste for land ownership. And because large-scale farming is often associated with increased productivity, although there is no inherent causation in reality — governments and international institutions might be happy to support this process from a policy perspective.

African societies will need to work out for themselves how to deal with this dynamic. In the context of still unclear ownership, pervasive corruption, high level of distrust towards authorities and the emotional component that connects land issues and identity, this is certainly not a trivial task.

Finally, much of the “green revolution” that has made transforming agriculture in India and other developing countries possible over the last decades relies on extensive use of fossil fuels for fertilizing, intensive use of soil and water resources and formerly pristine habitats as well as genetically modified organism. Everything on this list presents serious environmental concerns and using the same methods to develop the agricultural sector in Africa would have profound consequences on local ecosystems.

Charting a New Course

It is about time for African governments, societies and businesses to solve these issues and in some respects, progress has already been made: large sums are invested into infrastructure by those countries who have the money to do so; Countries like Kenya, Ethiopia, Morocco and South Africa are already reaping the literal fruits of successfully positioning themselves as extensions of European agricultural markets; Mobile technology delivers the foundation for an ongoing revolution of financing small-scale farming and homegrown and international banks start to take investing in the sector seriously.

Too much of the debate is still fragmented, though. Issues of finance, poverty reduction and environmental concerns are still treated as different subjects by governments, NGOs and investors. But agriculture, much more than any other human activity, connects social, economic and environmental issues and to successfully transform the African agricultural sector all actors will need to recognize this.