MULTINATIONAL firms from Europe, North America and more recently China still dominate the extraction and refining of most minerals mined in Africa, with minimal roles for African firms.
From these minerals, foreign manufacturing firms produce consumer and industrial goods for sale on global markets at much higher prices than what’s paid for the raw materials in Africa. This is a source of much angst among policymakers and economists, who are calling for increased local participation and beneficiation in the mining industry.
The Namibian government has been routinely advised to add value to its own natural resources to drive economic development. This is presented as a way of getting a slice of the huge returns enjoyed by others at the expense of the country in which the minerals are mined. This seemingly obvious reasoning is the basis of a growing policy focus on mineral beneficiation, which involves improving the economic value of a mineral by turning it into a final or intermediate product.
The argument sounds logical. But accessing the rewards of this approach isn’t that simple. Those in favour of beneficiation tend to ignore the complexity of industry and markets of beneficiated products and the rules and regulations of supply chains. Most products, components and operations of the beneficiation industry and markets are currently alien to many African economies – and Namibia is no exception.
This means that, for the moment, beneficiation remains out of reach. A critical hurdle to Africa developing a strong industrial base – a prerequisite for any beneficiation – is the dominance of China and other Asian countries in the labour intensive manufacturing sector. A greater focus on the production of input goods could yield better results. This is because it offers an easier development path that’s within technical grasp of many African countries.
The scale of Africa’s mining industry means that it has a ready-made market for input goods and services. This includes the supply of heavy mining spares and consumables, contract mining, as well as security and catering services.
It makes business sense to have the input goods and services of these activities close to where they are needed. Close proximity gives companies an advantage over multinational firms. Even more critical, proximity reduces the need for the mining industry to hold huge inventories of imported spares and consumables – a nightmare for cash flow.
Recommending that African countries focus on the processes that precede mineral beneficiation isn’t hypothetical. The historical experiences of the US and Norway, for example, confirm the positive stimulus that these processes had for the overall industrialisation journeys of these countries. The two countries transformed within 30 years to be leading suppliers of mining inputs that include mine dump trucks and drill rigs.
African states, including Namibia, can follow the same strategy, with the necessary adjustments, and harvest the low hanging fruits of resource endowment, leap-frogging to achieve the same over a shorter period.
Confidente. Lifting the Lid. Copyright © 2015