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Isaac Haruna Ziaba

March 11th, 2020

Indigenous mining can curtail Africa’s resource curse

4 comments | 22 shares

Estimated reading time: 5 minutes

Isaac Haruna Ziaba

March 11th, 2020

Indigenous mining can curtail Africa’s resource curse

4 comments | 22 shares

Estimated reading time: 5 minutes

Despite centuries of mining Africa’s abundant resources, economic transformation on the imagined scale remains a mirage. The continent needs to nurture an indigenous capitalist class with small-scale mining, says Isaac Haruna Ziaba, and overcome its reliance on ‘exploitative’ transnational corporations.

Africa has long been argued to suffer from a so-called ‘resource curse’, where countries’ natural resource endowments have not translated into positive economic growth. In some cases they have led to contraction.

In 2009, the African Union confronted the issue in its African Mining Vision, which sought to maximise the continent’s share of mineral resources by introducing the concept of mineral beneficiation, among other measuresMineral beneficiation underscored how Africa could curtail the ‘curse’ by adding value to its crude natural resources through manufacturing and industrialisation.

However, ten years later, ‘beneficiation’ has proven elusive. Instead, African governments continue to lament the exploitative nature of existing transnational mining structures. For instance, in 2017, the Tanzanian government accused Acacia Mining of tax evasion to the tune of US$190bn while, in 2018, the Ghanaian government rebuked AngloGold Ashanti for breaching local content laws.

These state-business tensions show that, without rescinding the power of transnational mining companies, resource-led economic transformation in Africa will be blocked.

Artisanal and small-scale mining

Recent years have seen the proliferation of artisanal and small-scale mining (ASM), a labour-intensive activity involving simple tools and limited capital on relatively small plots of land. Globally, an estimated 40.5 million people are directly employed in ASM, whereas the figure in Africa stands at roughly 8.21 million.

Apart from the direct employment ASM offers, the sector has linkages with a spectrum of financial and non-financial services and industries, including farming, leasing companies, mobile banking services, hospitality and catering services, and mechanical and electrical sectors. Profit retention is conceivable in ASM because its largely domiciled status makes offshoring of profits highly unlikely.

By taxing licensed gold exporters that only patronise gold from ASM producers, governments can accrue their own needed revenues. Indeed, Ghana’s and Tanzania’s central banks are prioritising the purchase of ASM gold to increase their reserves and stabilise domestic currencies.

Nonetheless, despite their lamentations over the exploitative practices of transnational mining capital, African governments have commonly preferred such capital because they can easily extract rent (through royalties, taxation, fees, etc.) from this sector. However, a hyper-focus on rents complicates the resource curse because transnational mining companies generally repatriate profits to their home countries. They also mainly use non-African refineries and jewellery companies to add value to raw minerals. These perpetuate the enclavism of African economies, exacerbating the weak links of mining and its dividends to local economic needs.

As a third of the almost 420 million African youth are unemployed, while boosting domestic government revenues, the ASM sector provides a mechanism to reduce the continent’s youth unemployment challenges.

Contrasting approaches to ASM

Perceptions in academic and policy circles that rising poverty among rural people encourages ASM practices in fact hinders policy measures that could leverage the sector’s potential. These perceptions, rather, drive governments’ overemphasis on alternative livelihood projects for the perceived poverty-stricken ASM workers, as part of efforts to reduce such mining by creating other means of earning living (despite mining remaining more lucrative).

These views also account for state-sponsored evictions of ASM companies and individuals in Uganda and Ghana, whom governments regard as a nuisance to ‘huge’ foreign mining companies and the physical environment. The Ghanaian state, for instance, clamped down on all forms of ASM from March 2017 to December 2018 because ASM was said to cause environmental degradation.

Despite this clampdown, data from Ghana’s Mineral Commission shows that the sector’s share of total gold production stood at a staggering 43% in 2018. My research suggests that this is mainly because the clampdown unwittingly spared certified private gold dealers. In seeking to maximise profits, these dealers clandestinely pre-finance illegal ASM operatives to increase their access to gold at relatively lower prices.

The Ghana National Association of Small-Scale Miners’ consideration of forming a chamber of small-scale miners underlines the entrepreneurial spirit driving ASM, and the resilience of the sector to clampdown measures.

However, unlike Ghana, Tanzania has begun to recognise the potential in building a domestic mining capitalist class around ASM. A review of the latter’s mining laws in 2017 culminated in the decentralisation of the country’s mining licensing process, granting oversight to the 26 Resident Mining Offices. By contrast, small-scale mining licenses are highly centralised in Ghana. Miners in Tanzania can expect to receive their licenses in about two weeks, compared to Ghana where artisanal mining licenses are processed between three and six months.

Moreover, in 2019 the Tanzanian government created central gold market systems across its 26 active ASM regions, which ensures that miners have access to fair trade. It also contributes to government revenue through taxation of miners. Despite ASM contributing only 15% to total gold production in Tanzania, one government official revealed that about 40% of total gold revenue came from ASM in 2019.

Indigenous capitalism

In many ways, the Tanzanian example mimics Chile’s effort to build indigenous capitalism around copper mining. By the late 19th and early 20th century, American companies had bought the claims of artisanal miners. However, the Chilean state established the Empressa Nacional de Mineria (ENAMI) in 1960 to provide loans to small-scale domestic miners while granting them access to mineral processing facilities.

Over time, these small-scale miners upgraded their operations. By the turn of the 21st century, Chile could boast of domestic large-scale private mining firms, which included the Luksic Group, the Compagnia de Acero del Pacifico and the Compania Minera San Estaban. In 2013, for instance, 12% (US$27.6 billion) of Chile’s GDP ($230 billion) came from mining.

Tanzania and Ghana should take heed from Chile, especially when research has linked Africa’s underdevelopment with its own scarcity of indigenous capitalism.

These cases show that concerted efforts to support and promote sustainable and responsible ASM can not only support livelihoods, but also lead to the evolution of an indigenous capitalist class based around Africa’s resource endowment. This can assist in creating the necessary conditions for economic transformation and curtail the resource curse.

Photo: Gold mine in Tamiougou just south of Kongoussi. ‘Gold mining’ by Ollivier Girard/CIFOR is published under creative commons (CC BY-NC-ND 2.0).

About the author

Isaac Haruna Ziaba

Isaac Haruna Ziaba

Isaac Haruna Ziaba is a PhD candidate at the LSE’s International Development Department. He holds masters degree in International Conflict and Cooperation from Stirling University, UK and previously worked with the Kofi Annan International Peacekeeping Training Centre (KAIPTC) and the Institute for Democratic Governance (IDEG), Accra, Ghana.

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