Africa is home to the world’s largest arable landmass; second largest and longest rivers (the Nile and the Congo) and its second largest tropical forest. The total value added of its fisheries and aquaculture sector is estimated at USD 24 billion. The continent ranks top two in global reserves of bauxite, chromite, cobalt, diamond among other minerals. Rich in oil and natural resources, the continent holds a strategic position as about 30% of all global mineral reserves are found here.
The proven oil reserves constitute 8% of the world’s stock. Minerals account for an average of 70% of total African exports and about 28% of gross domestic product. In fact all of Africa’s top five exports are mineral-related. Africa has significant natural resource wealth; that is not the question.
But mining has largely not benefited Africans. The weakness of fiscal regimes and public agencies governing the mining sector in many African countries present difficulties for economies to effectively manage and tax the sector; leading to low revenues. The problem of low revenues is worsened by the extensive use of tax avoidance, mispricing and anonymous company ownership by multinational corporates that maximize their global profits at the expense of Africa’s socio-economic development.
In addition, there has been questioning specifically in mining regime of how the benefits associated with the extraction of these resources are shared among key stakeholders. In Kwale County Kenya for instance, locals complain of never seeing the profits from the many minerals (gemstones, titanium, silica sand, rare earth elements, lead, copper, zinc, barite, coal and limestone) extracted in the region. The Mining Act 2016 provides that royalties should be shared in the ratio 70:20:10 for national government, county government and communities respectively.
The contribution of extractives to public finance is significant, with some African countries’ public revenue almost dependent on them entirely. Over the years for instance, Kenya has been collecting royalties from various mining companies. In Financial Year (FY) 2014/2015, the state collected Ksh. 1.28 billion in royalties. The following FY 2015/2016, the collection reduced to Ksh. 1.1 billion and then declined further to Ksh. 1.0 billion in 2016/2017. Finally in FY 2017/2018, the national government collected Ksh. 1.4 billion in royalties.
The question that rises is how the 10% is shared among the host communities, since according to Kwale locals, they never see these benefits. And this brings the idea of how the state utilizes these monies, if we don’t quite see the developments as a result. Have you heard about the African Mining Vision and the Sovereign Wealth Funds?
In response to the continued loss of benefits from the sector, African heads of states adopted the Africa Mining Vision (AMV) in 2009. The vision’s ultimate goal is to use Africa’s mineral resources to promote equitable and broad-based socio-economic development throughout the continent. The AMV is not only developed by Africans for Africa but puts long-term development at the centre of mineral extraction. Sovereign Wealth Funds (SWFs) on the other hand are government-owned pool of funds that pursue long-term investment strategies through various financial assets.
A number of resource rich countries have established SWFs to effectively manage revenues generated from extraction of resources. This has enabled the countries to sensibly utilize the funds while at the same time investing excess funds to generate more income and save for future generations. Norway, for example is one of the success stories in the management of resource revenues through the SWF. This has inspired developing countries like Libya, Algeria, Angola, Nigeria, Botswana, Senegal and Ghana to establish SWFs for the management of their natural resource revenues.
In October 2013, the Presidential Task Force on Parastatal Reforms proposed the establishment of Kenya’s SWF, and presented a report on it to the president. In this regard, the government through Treasury drafted the Kenya National SWF Bill whose main aim is to ensure that there is proper management of the proceeds from oil, gas and mining industries. If this proceeds and is accented into law, it could be among the best milestones Kenya would have made towards management of natural resource revenues.
Just as the AMV seeks to foster a transparent sector with equitable benefits from exploitation of the mineral resources, the SWFs are primarily to stabilize the country’s economy through diversification and generate wealth for future generations. If adopted, (in the case of SWF which is still a bill) these would guide utilization of natural resource income for inclusive growth and sustainable development, as well as improve the country’s way of revenue management from natural resources; and hopefully be the answer to the many concerns by local communities from mineral-rich areas.