Session Four: The AMV: Mining Sector Linkages and Clusters

Oliver Maponga was the resource person for this session. His presentation covered the benefits and prospects of mineral beneficiation in Africa; the instruments for promoting linkages and an exploration of the challenges; and concluded with a discussion on industrialisation and beneficiation.  

Oliver made clear that linkages, beneficiation and value addition are the centre piece of industrialization from minerals. To that extent this ambition in the AMV represents its most far reaching element with regard to Africa’s structural transformation because it is in stark contrast with the current reality of very weak links between mining and the rest of national and regional economies. The presenter set out the many elements of action at national and regional levels in the AMV Action Plan that deal with linkages and diversification.

National Actions

  • Identify and promote development of  minerals to enhance economic linkages;
  • Develop value addition policies and strategies (based on supply-chain analyses) including local content and beneficiation ;
  • Investigate the judicious use of export taxes to encourage beneficiation;
  • Identify and promote viable beneficiation projects;
  • Review and align international agreements to create space for mineral resource based industrialization and development;
  • Create a database on tariff and non-tariff barriers to mineral-based value added products and expand their access to regional and global markets
  • Promote holistic and multi-sectoral approaches to mineral development policy
  • Develop institutional arrangements that combine the minerals, industry, trade and STI complexes.

Regional Actions

  • Review best practice in state equity participation and develop guidelines and toolkits for RECs and  member states
  • Cooperate in the formulation and implementation of trade and investment policies that facilitate linkages development
  • Ensure that WTO, EPAs, FTAs, BITs and other bilateral, regional and/or international agreements do not constrain policy space for mineral resource based industrialisation and value addition.
  • Develop regional strategies to eliminate tariff and non-tariff barriers to mineral-based value added products and expand their access to regional and global markets.
  • Develop a framework for mineral value addition in Africa for RECs and  member states
  • Develop best practice guidelines for holistic and sector-wide and multi-sectoral approaches to mineral development policy for RECs and  member states
  • Develop best practice on new institutional arrangements combining the minerals, industry, trade and STI complexes for RECs & member states
  • Review best practice in linkages promotion and develop guidelines and toolkits for RECs & member states

Oliver explained the nature of linkages – from upstream, through sidestream to downward linkages. He also represented them in terms of fiscal and productive linkages. The fiscal linkages come through the optimum capture and use of revenue to create productive assets, including skills, infrastructure and new production units outside the mineral sector. The productive linkages include - upstream and backward linkages – supply side; downstream and forward linkages – demand side; technological linkages – incubation & R&D, and sidestream linkages – support services. Productive linkages are created through various formal (e.g. supply contracts), informal (e.g. technology transfer networks), and direct and indirect supply chains comprising procurement, outsourcing or sub-contracting of services

The development of linkages is important for a number of reasons:

  • Mineral resources can catalyze broad-based growth and development and provide opportunities to deepen the resources sector through the optimization of linkages into the domestic economy;
  • Dependence on mining rent alone can hamper development by shifting focus from broader development issues and the expansion of other productive sectors;
  • Mining should spur the development of spin-off sectors that supply mining companies with a range of inputs and services.

The next part of Oliver’s presentation examined the benefits from linkages and prospects. He also examined the benefits and prospects for mineral based development clusters. He next looked at the steps that need to be taken to promote beneficiation, a point he illustrated with the experience of Botswana and Brazil. The needed steps include policy reform, strengthening of regional cooperation and integration, invest in economic infrastructure and the develop human resources and innovation capacity.

Oliver discussed a number of obstacles and challenges to successful beneficiation. They include the following:

  • Market access and protectionism:

Distortions in industrialized countries: Tariffs, NTBs (REACH) and subsidies that hinder value addition

Unfair competition

Inability of local firms to penetrate established global value chains

  • Multinational Company Policies

TNCs’s resistance to go beyond their core competence i.e. resource companies

TNCs usually come with ready-made global linkages, which optimise their global returns

Have global purchasing strategies which hinder the development of local suppliers

TNCs tend to optimise their global mineral processing and beneficiation facilities which can deny local downstream opportunities

Locate their high-level HRD and R&D in OECD countries thus denying Africa the development of this critical side-stream capacity

  • Human Resources Capacity: value addition requires high level skills for intensive R&D to drive value addition and industrial development – basis for a knowledge-driver sector (highly skilled knowledge driven sector)
  • Infrastructure: energy key to value addition – develop energy resources, basis for the development of corridors, spatial development initiatives, regional approach to infrastructure, can help access orphaned mineral deposits and become the basis of other economic activities; - can we build our regional value addition strategy around the vast energy resources of the DRC, for example?
  • Neglect of Industrial Minerals

Minerals with greater potential to promote local development and to be better linked to other sectors of the local economy (e.g. industrial minerals) have been neglected and have attracted less investment than those meant for export to the global market

  • Locational Advantages, Small Private Sector

No locational advantages for low volume and high-value minerals: Proximity to and knowledge of high-end markets and capacity to address their needs dictate advantage

No competitive local transport and logistics infrastructure to overcome distance to consumer markets

Small local private sector with little capacity to seize business opportunities to enter the minerals value chain

  • Rent capture and Management and Small Markets

Inadequate capture and management of resource rents

Underdeveloped economies and insufficient economies of scale

No financial muscle and difficulty to access capital

Small and fragmented markets especially for industrial goods and services and reduced intra-African trade

  • Poor legal and regulatory frameworks and limited government capacity

Unfavourable legal and regulatory frameworks

Fear that imposing strong linkages conditionalities could deter FDI

Restrictive procurement policies of IFOs and inability of local firms to comply

Lack of government capacity (e.g. to negotiate good deals)

In conclusion Oliver suggested some of the steps needed for the success of beneficiation policies:

  • Mainstreaming of linkages and cluster development in overall development policy
  • Adequate coordination of public and private initiatives anchored on a shared vision
  • Focus on quality/competitiveness, rather than size
  • Leveraging of factor conditions and existing assets and endowments
  • Focus on acquiring, assimilating and continuously improving the knowledge base
  • Establishing of virtual networks and global outsourcing of services to overcome the barriers of distance.