Transcript RADS - University of South Africa
Dr Paul Jourdan, Integrated Development Consultant SAIMM, Cape Town, August 2010
Part I
Africa’s Natural Resources
• • • • • •
Africa’s Natural Resources
Agriculture
– Contributes 40% of African GDP % provides livelihood for 60% of population, but largest user of
scarce
water – Enormous unrealised potential (low yields & only x% under cultivation) – But, agri-commodities exported without processing (beneficiation)
Minerals
– World’s top producer of numerous mineral commodities; – Has world’s greatest resources of many more; – Africa lacks systematic geo-survey: could be > resources; – But exported as ores, concs, metals: Need > beneficiation.
Energy
– Significant fossil fuels (oil, gas and coal) – Large biomass and bio-fuels potential (ethanol, bio-diesel) – Massive hydro-electric potential (Inga 45GW, Congo River 200GW)
Forestry
– 22% of African land is forested (650m hectares= 17% of world total); – Deforestation: Africa’s net change highest globally = -0.78% p.a; – Huge silviculture potential, but exported as logs/chips: need > bene.
Fishing
– Decline in catch rate (international poaching! over-harvesting); – 68% of marine protected areas under threat; – Aquaculture/mariculture still nascent (large potential)
Tourism
– Major potential (world’s greatest diversity: culture, flora, fauna, geomorphology) – Increasingly important source of livelihood
Africa is well-endowed with mineral resources
Mineral Production & Known Resources (‘04) (however, much of Africa is still un-surveyed) Mineral Production Rank Reserves Rank PGMs* Phosphate Gold Chromium Manganese Vanadium Cobalt Diamonds 54% 27% 20% 40% 28% 51% 18% 78% 1 1 1 1 1 1 1 2 Aluminium 4% 7 45% Also Ti (20%), U (20%), Fe (17%), Cu (13%), etc.
*PGMs: Platinum Group Minerals 60+% 66% 42% 44% 82% 95% 55+% 88% 1 1 1 1 1 1 1 1 1
Geology & Mineral Resources
African Geology
Areas covered with recent overburden (unknown underlying geology)
Africa’s Undiscovered Resources
Source: USGS; USGS Mineral Resources Program. The Global Mineral Resource Assessment Project
Although private exploration spend is increasing, this isn’t an alternative to systematic geo-survey!
Arica is 20% of the crust area and 15% of exploration spend
Africa also has significant energy resources fossil fuels (oil, gas, coal), HEP & geothermal :
Goethermal Potential: Great African Rift Valley Gulf of Guinea
considered to be one of the world’s most prospective oil & gas terrains
And Africa has huge HEP (Congo R: 200GW)
Yet most Africans don’t have access to electricity and rely on biomass for energy!
And Africa has huge water potential…
(except for North Africa) Withdrawals by sector Region
Northern
Agriculture Communities Industries
x 10 6 m³/yr x 10 6 m³/yr
Total As % of total
x 10 6 m³/yr x 10 6 m³/yr %
% of internal
%
resources
65 000
(85%)
5 500
(7%)
5 800
18%)
76 300
(100 %)
50.9
152.6
16.1
14.2
Sudano-Sahelian 22 600
(94%)
Gulf of Guinea 3 800 (62%) Central Eastern 600
(43%)
5 400
(83%)
1 200
(5%)
1 600 (26%) 600
(43%)
900
(14%)
300
(1%)
700 (12%) 200
(14%)
200
(3%)
24 100
(100%)
6 100 (100%) 1 400
(100%)
6 500
(100%)
4.1
0.9
4.3
0.6
0.1
2.5
Southern Total 14 100
(75%)
127 900
(85%)
3 000
(16%)
13 000
(9%)
1 800
(9%)
9 020 (6%) 18 900
(100%)
149 920 (100%)
12.6
100 0 6.9
3.8
Source: FAO
But access (water infrastructure) is lacking!
And agricultural potential...
Part II
Future Resources Demand & Prices
The demand boom has disproportionately increased mineral prices!
(also lower mineral supply elasticity) FeMn Cu Ni Cocoa Cotton Oil Soy Sugar Maize
Beyond the US Toxic Assets Crisis?
Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf
Asian Boom:
New “scramble for resources”?
High intensity, Africa’s new opportunity?
High intensity, sellers market: Colonial system Steel- good proxy for most minerals Low intensity, buyers market: stagnation & instability
How long will boom last?
However, prices will fall with increasing supply over the medium-long term, but at a higher level (lower grades) Steel Intensity (all metals proxy) ?
PRC India ~$16k/capita China + India > 2X pop’n of First World!
Data Source: BHPB 2006
Part III
Beyond a hole in the ground: Resource Sustainability?
Minerals Sustainability?
Resource Industry Linkages
(beyond resource rents) 1. INFRASTRUCTURE: Puts in critical infra (transport, energy) for other non-minerals economic potential
Use wasting asset to underpin growth in sustainable sectors
3. DOWNSTREAM Value-addition Beneficiation Export of resource based articles 2. UPSTREAM Inputs: Plant, machinery, equipment, consumables, services, (export)
HRD, R&D
4. TECHNOLOGICAL Linkages: “Nursery” for new tech clusters, adaptable to other sectors
The direct potential linkage is the provision of infrastructure that could be used to realise other resources potential (e.g. agriculture)
Exploration Mining Mineral Processing Refining Cap. Goods
•Smelters •Furnaces •Electro winning cells •Casters
Fabrication Cap.goods
•Rolling •Moulding •Machining •assembling
Smelting & Refining Fabrication Refining services
•Reductants •Chemicals •Assaying •Gas & elec supply
Value adding services
•Design •Marketing •Distribution •Services
Resources inputs sector (up-stream) has a comparative advantage in: 1. Relatively large local market 2. Development of techs for local conditions 3. National asset: permits for concessioning with linkages conditionality
The resource curse can be avoided!
“Deepening” the resource sector linkages: development of the resource inputs & outputs industries is critical ,
Finland: 1970 on primary commodities (pc- mining & forestry) Finland: e.g. Forestry grew capital goods (machinery) & value-added exports (wood manufactures, pulp/paper)
Thru’ investment in R&D!
curve (ISI), but shifts to 1998 primary commodities (mining & agriculture) curve, after opening up its economy (coup) in the 70’s.
Finland managed to shift from a 1970 resources (pc) trajectory to a 1998 manufactures (mf) trajectory, through the development of its resources inputs (machinery) and outputs (value-addition) sectors (source Palma, G. 2004)
Using a natural comparative advantage to develop a competitive advantage Finland: The mature forestry industrial cluster 1997 a BACKWARD LINKAGES FORWARD LINKAGES 1. Specialized inputs
Chemical and biological inputs (for production of fibres, fillers, bleaches)
2. Machinery and equipment
For harvesting (cutting, stripping, haulage) For processing (for production of chips, sawmills, pulverization) For paper manufacture (30% of the world market)
3. Specialized services
Consultancy services on forest management Research institutes on biogenetics, chemistry and silviculture
NATURAL COMPARATIVE ADVANTAGE Abundant forestry reserves and plantations (400-600m 3 per capita) b SIDE LINKAGES Related activities Electricity generation Process automation Marketing Logistics Environment industries (paper) Mining (sulphuric acid) 1. Roundwood Sawnwood Plywood (40% of the world market) 2. Wood products Furniture For construction 3. Wood pulp 4. Paper and cardboard Newsprint Art paper (25% of the world market) Toilet paper Packaging Special products Source: Ramos 1998 p111 (CEPAL Review, #68, 12/1998); a: Generates 25% of Finland’s exports; b: Compared with 25-30m3 per capita in the rest of the world.
HC Technology Strategy: (
Norway: OG21 tech strategy)
Prolong the life of the resources, migrate to exports of resource techs and value-added products: survive beyond resource depletion!
>Tech exports >Gas VA R&D >recovery >resources
The foreign resource capital “trade-off”
In order to rapidly acquire the requisite capital and skills, African states have generally opted to realise their resource endowments through attracting foreign resource companies (TNCs & JRCs), rather than mainly relying on domestic capital. However, this “trade-off” comes with several possible “threats” 1.TNCs often have global purchasing strategies which are less likely to develop local suppliers (linkages), 2.TNCs tend to optimise their global processing (beneficiation) facilities which can deny local downstream opportunities; 3.TNCs locate their tech development (R&D) in OECD countries, thereby denying Africa the development of this critical side stream capacity; 4.TNCs also tend to locate their high level HRD in OECD countries (often linked to their R&D university partners), which could deny African states the development of this seminal capacity; 5.In the longer term there are clearly political downsides to a resource sector dominated by foreign capital; 6.Finally there is the TNC “core competence” conundrum.
Inappropriate Mineral Regimes
Africa is not capturing mineral rents!
High prices: colonial mineral regimes: Pro colonisers/TNCs High Prices: WB “free mining” regimes- minimal linkages!
High prices: Post-colonial regimes: Strongly national Steel- good proxy for most minerals Low prices: WB revisions: Overly pro-TNC!
Extracting Greater Benefits?
Beyond 1
st
-come-1
st
-served regimes?
Exploration Terrains HIGH RISK MID RISK Exploration Terrain Exploration License
Automaticity RoR*/RRT tax Mining Charter type conditions
Geo-Reserve Terrain
•
Further geo survey;
•
Risk exploration for future step in rights.
LOW RISK Delineation Terrain Auction
on: • • • • •
rent share Infra development Up/downstream invest equity (“mining charter”)
local HRD & R&D: Tech!
Mining Licence
*ROR: Rate-of-Return
Key Elements in Maximising the Developmental Impact (price discovery)
Bid evaluation should be based on several transparent weighted criteria:
• State revenue over the life of the concession; – Tax, – Royalties, – Resource rent taxes (RRT), –
Annual investment into local HRD & R&D!
• Excess capex: over-dimensioning of project infrastructure for use by other sectors:(transport, power, water, etc.) • Upstream investments (project inputs); • Downstream investments (beneficiation) • Technology transfer & local R&D
Recent W.African Fe ore concession example: Direct project capex (mine, power, rail, port, water) circa $1.5bn, but by using the above concession criteria the top bid was at $4.4bn, including a downstream steel plant, river basin management (irrigation & agro-industries), a cement plant, 50%-100% extra infrastructure capacity and higher RRT.
SA Example- The lost potential impact of concessioning the
state’s manganese assets against developmental goals
In 2002/3 the state’s manganese assets were given a diverse group of B-B BEE companies that have failed to optimise the potential developmental impacts of this world-class mineral asset (possibly the best unexploited manganese property in the world).
Before these assets were “given” to the B-B BEE interests several steel majors had shown a great interest in acquiring them. This led to a high level check, in India & China , on the appetite for steel companies to establish a world scale steel plant in South Africa in exchange for this asset and the response was positive. Consequently it was that the state’s unique manganese resources should rather be auctioned against the following criteria: Job creation (direct & indirect); Downstream beneficiation (ferro-alloys, Mn, Mn salts, etc.); The establishment of a world-scale steel plant for flat & long products that would sell into the SA market at EPPs (export parity prices) and thereby discipline Mittal’s monopoly pricing; Revenue stream to government (royalty, taxes: RRT?); Technology transfer & local R&D; B-B BEE.
Unfortunately this proposal was rejected and instead these assets were given to several B-B BEE companies that lacked the resources to optimise the propulsive impact of these national assets. A rough calculation on the potential jobs lost by this “give away” came up with a figure of over 100,000, mainly due to the impact of lowering steel prices to our manufacturing sector by 30% to 50% (after labour, steel is the most important input by value into SA’s capital goods sector).
One of numerous opportunities lost!
Facilitation of up- and down-stream linkages 1.Minerals are a finite national asset: build linkages into the concession (license) conditions (through “price discovery”) 2.Access to competitively priced feedstocks:
•
Downstream: restrict exports of crude resources: export tariffs?
•
Upstream: Capital goods- steel and special steels (poss. for regional iron/steel production facilities); 3.Access to concessionary capital: DFIs: local, regional,continental & global. Venture capital funds (PPPs with TNCs?); 4.Competitive currency (forex rate): Ameliorate the Dutch Disease by keeping windfall rents offshore and committing to long term physical & social infrastructure (drip-feed back into economy)?
5.Access to requisite skills: Dedicated HRD institutions (JV’s w/foreign Universities). Concession HR “indigenisation” conditions. Strategy to repatriate the huge African skills “Diaspora”?
6.Access to technology: Establish resources up- and down-stream research facilities (R&D PPPs?) and use of resource rents for R&D. Make tech transfer/development a concession condition!
7.Access to supply contracts: Ensure that equitable access for local suppliers. Judicious use of tariffs for infant industries. Ensure foreign supplier localisation through local content milestones?
8.Infrastructure: Establish world-class human (skills)& physical infra (transport, energy, water, telecoms, etc.) using resource rents.
However! Africa’s huge resources potential is critically constrained by poor infrastructure
• Africa is the highest continent (few navigable rivers), > infra cost and O&M cost; • 93% of Africa in the tropics (ITCZ, high ppt): >cost of infrastructure provision and O&M; • Incoherent European balkanisation resulted in many African states being landlocked; • Africa has only 10% of land within 100km of coast (cf. 18% OECD & 27% Latin America) and • Only 21% of its people live within 100km of coast (cf. 69% OECD & 42% Latin America);
Resulting in Africa having the world’s highest relative logistics costs (poor infrastructure)
Africa’s potential could be realised through integrated Development Corridors (not a neo colonial “scramble for resources”)
Resource-based African Development Strategy:
4 sub-strategies
Minerals, Agric, Forestry Resource Processing Refining Inter mediate products Fabri cation
Resource Capital Goods & Services (generic tech)
Enhance resource-tech (HRD, R&D) capacity
Lateral Migration into Unrelated knowledge based Industries
eg: process control construction equipment, atmospheric control, pumping, materials handling, etc, etc….
Resource-based African Development Strategy:
4 sub-strategies
Minerals, Forestry Resource Processing Refining Inter mediate products Fabri cation
Services (generic tech)
Enhance resource-tech (HRD, R&D) capacity
Lateral Migration into
Strategy 3: Lateral Migration
based Industries
eg: process control construction equipment, pumping, materials handling, etc, etc….
Strategy 4: Infrastructure
Africa’s huge resources potential is critically constrained by poor infrastructure
• Africa is the highest continent (few navigable rivers), > infra cost and O&M cost; • 93% of Africa in the tropics (ITCZ, high ppt): >cost of infrastructure provision and O&M; • Incoherent European balkanisation resulted in many African states being landlocked; • Africa has only 10% of land within 100km of coast (cf. 18% OECD & 27% Latin America) and • Only 21% of its people live within 100km of coast (cf. 69% OECD & 42% Latin America);
Resulting in Africa having the world’s highest relative logistics costs (poor infrastructure )
Insurance and freight import values for selected groups of countries
Freight & insurance as a % of cost World total Developed market economy countries Developing countries total: of which: Africa America Asia Landlocked Africa: East Africa Southern Africa West Africa Least developed countries 1985 4.6
3.8
7.7
11.3
6.7
7.7
14.8
17.9
12.5
30 13.8
1990 1995 1997 5.5
4.2
4.4
3.5
11.2 7.4
6.5
10.6 11.3 10 12.8 6.4
11.2 7.4
5.6
6.5
15.8 10.7
20.2 16.7
11.5 9.9
30.2 24.6
14.6 12.5
4.1
3.4
..
14.6
..
..
Source: UNCTAD
Africa’s logistics costs ~250% global average!
“There are in Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and the gulphs of Arabia, Persia, India, Bengal, and Siam in Asia, to carry maritime commerce into the interior parts of that great continent: and the great rivers of Africa are at too great a distance from one another to give occasion to any considerable inland navigation.” Smith, Adam. 1976 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations . Chicago: University of Chicago Press (Cannan’s edition of the Wealth of Nations was originally published in 1904 by Methuen & Co. Ltd. First Edition in 1776). page 21
Catalyse other Sectors & Areas (agri, tourism, etc.)
Recap:
Infrastructure: transport, energy, skills, R&D
Exploitation capital goods:
e.g. plant, equipment, after-market, etc.
Processing capital goods Intermediates capital goods
BEYOND COMMODITIES?
Use Asian resource demand to kick-start a
Processing Intermediates
Resource-based African Development Strategy “RADS”
(feedstocks) Exploitation services:
e.g. financial, technical, consumables, logistics,
Processing services Intermediates services
energy, skills, etc.
Resource inputs: key to tech development
I II III IV Schematic RADS Phasing (relative economic importance)
Phase 1 Phase 2 Phase 3 Phase 4 Resource Beneficiation (value-addition) Resource Exploitation Densification Infrastructure Resource Infrastructure Skill intensity (HRD) Unskilled resource labour Rents from Resource diversification industries Diverse tax base Resource rents (tax) Resource Inputs production & Lateral migration (diversification)
V
Resource R&D. high level skills and tech development
VI VII
Complex regulation, M&E, arbitration, governance Local judicial system Contract/license resource & infra (PPP) governance Resource Exploitation & infrastructure phase Resource Consumables & HRD phase Resource R&D, capital goods & services phase Lateral migration & diversification phase
I II Schematic RADS Phasing (relative economic importance)
Phase 1 Phase 2 Phase 3 Phase 4 Resource Beneficiation (value-addition) Resource Exploitation Densification Infrastructure Resource Infrastructure Skill intensity (HRD)
III
Unskilled resource labour
IV
Rents from Resource diversification industries Diverse tax base Resource rents (tax)
V VI
Local Resources Technology Development is Critical for Progression!
(diversification)
VII
Complex regulation, M&E, arbitration, governance Local judicial system Contract/license resource & infra (PPP) governance Resource Exploitation & infrastructure phase Resource Consumables & HRD phase Resource R&D, capital goods & services phase Lateral migration & diversification phase
Stakeholders: Labour, Business, Civil Society Parliament SA Government Ministries: DMR, DME, EDD, DTI, DST, NT, DPE, etc.
SOEs & State Institutions (Nat. Treasury) “Future Fund” (EDD) IDC: “Mindevco”* (Nat. Treasury) “RCCC”* (DMR) CGS (DST) “MRTC”*
• Offshore fund to accumulate min. rents: RRT &, poss, royalties.
• “Drip feed” back into local & regional economies for long term:
1. infrastructure, 2. HRD, 3. geo-knowledge & 4. tech development
• Hold all state equity in mining & beneficiation; • Hold & develop state Strategic Mineral assets; • Hold & dev. “partially known” mineral assets; • 1 st sight of all new CGS geo-data (3m); • Partner BEE co’s, <50%.
• Develop systems for resources competitive concessioning; • Dev. assessment criteria & relative weightings; • Oversee resource auctions/concessions; • M&E of concessions & licenses.
• Categorise SA into “known”, “unknown” & “partially known” assets; • M&E of all exploration/ prospecting licenses; • Work w/Mindevco in ID & dev. of new assets; • Accel. geo-mapping & ID of new assets • Develop a SA resources tech & HRD strategy; • Rebuild/reinforce the tech cluster: Mintek, Necsa, CSIR (ex Comro), etc. & HRD cluster (HEIs); • M&E of resource tech cluster & resource HRD institutions (HEIs, etc.).
* proposed “Mineral Development Corporation”, “Resources Concessions & Compliance Commission”, “Mineral Resources Technology Commission”