The scramble for Africa’s resources

Dr Duncan Clarke, Chairman of Global Pacific & Partners

During the late 19th century, barely a year went by without wealthy Europeans and Englishmen exploring Africa, scrambling to secure the rich resources of the continent.

The boom was triggered largely by the creation of the African Association in 1788 in a bold quest to find the fabled city of Timbuktu and navigate the course of the Niger River looking for viable trade. Later on, with the demise of slave trading, the need for continuous commerce between Europe and Africa grew significantly, and the hunger for other commodities gnawed in the bellies of explorers and their patrons.

The 19th century scramble for Africa saw the great powers rush for geopolitical position and commerce, but today’s scramble for Africa is a vital arena of strategic and geo-economic competition between the US, France, Britain, China and India, all hastening to take part in the Africa economic growth story.

“The interest of Brazil, Russia, Turkey, Australia and many other emerging states in Asia and the Gulf has grown to embrace oil, gas, minerals, land and producible assets,” says Dr Duncan Clarke, Chairman of Global Pacific & Partners.

As one of Africa’s leading strategist, with a B.Comm (Hons) andPhD in Economics, forty years’ background in resources and economics in Africa, and 30 years’ experience within the worldwide upstream exploration industry, Duncan Clarke shares with Leadership his expert knowledge and valuable insights on a topic close to his heart: the scramble for African resources, which he will also be talking about at the 20th Annual Investing in African Mining Indaba™ in Cape Town this month.

With around 350 unique images of Africa in a global resource context, Clarke will provide unrivalled insights into a complex, fast-changing continent, delivering in-depth, analytic insights into the fundamental resource conditions and dynamic political economy of Africa at the Indaba. As an emerging market, Africa is an economic growth engine with rapid population growth, sustained development, a growing middle-class, and a continuous global demand for Africa’s natural resources.

Evolutionary pathways

With shifting realpolitik, Clarke sees Africa developing multiple evolutionary pathways, shaping the existing opportunities and potential for natural resource exploration and development. Clarke says, “The biggest drawcards are oil, coal bed methane gas, shale gas, copper, platinum, chrome, coal, iron ore, tin, titanium, gold, cobalt and a wide variety of precious and rare metals.”

Relating to the current investment climate and global economy, various investing risks still remain in Africa, while competition in global resource markets remains fierce. Smaller companies in Africa with little or no cash flow, and companies operating in unstable countries, will continue to struggle in trying to obtain investment capital, while competitive countries will benefit from judicious resource access and smart management and resource attraction/acquisition strategies.

“Typically in oil and gas, investment procurement often relates to bid rounds and direct negotiations in some states, and also the farmout market, which is assignment of part interest to a third party committing to spending money to perform specific activities, with a few corporate takeovers also possible,” Clarke told Leadership magazine.

Some of the leading corporate players competing for energy resources include super-major oil companies such as ExxonMobil, BP, Shell, Total, Chevron, and large independent companies like Anadarko, BG, and Tullow Oil. State companies from China (CNPC, CNOOC, Sinopec) and India (ONGC), Petrobras and Pertamina are also in the running.

Mineral companies competing include BHP Billiton, Rio Tinto, Vale, Glencore and many others from all over the world — notably from countries like Europe, Canada, the United States, Japan and Australia.

One of the main challenges affecting investments in the mining industry throughout Africa is the lack of infrastructure, a key to freeing up bulk commodities such as coal and iron ore. Lack of adequate infrastructure places massive strain on the continent as there are insufficient logistics services to get adequate amounts to ports for export.

A good example is coal mining activities in Mozambique’s Tete province, where miners need to transport coal to Beira or Nacala ports. Only large companies such as Brazilian mining giant Vale can really afford to establish their own rail lines.

Some African countries rely on large mining projects for financing large-scale infrastructure. However, it is challenging for mining companies to commit to large mining projects without the guarantee of the necessary infrastructure to export the ore and without the resources to finance related infrastructure themselves.

Finance is tight and only robust projects will generate investor interest and progress. Those that have access to existing infrastructure will have an advantage. “The smaller mining companies would be wise to locate near, or have third party access to infrastructure, and opt for lower costs for extraction and export,” adds Clarke.

Bureaucracy involved in interactions with governments is a complex sphere, as ministries in the same government often have different views on how the relevant laws should be applied to mining projects, and how to gain a greater share of the proceeds. This is worse when there is political conflict, or two or more countries are involved, as is often the case because rail lines and other infrastructure need to be developed across national boundaries.

As Clarke advises, “Each state needs to simplify authority, and hence separate policy from resource awards and investments which, if partly in the hands of the government, should be in a competitive state commercial entity that does not act with privilege.”

 He says resource nationalism is also a growing threat now and in the long term. Previously, resource nationalism was linked to the rise and fall of commodity prices — when prices fell, governments tended to loosen their control in an effort to encourage FDI. In times of prosperity, governments involved adopted a much more patriotic stance to gain a bigger share.

Now, however, resource nationalism is on the rise even when commodity prices are down. Other nationalisation measures include obtaining an increased equity stake in projects, higher taxes and royalties, and greater regulation, oversight and control of projects.

Clarke reckons resource nationalism has huge negative implications for future long-term economic growth and GDP capita in terms of opportunity loss and costs. “They are recipes for economic impoverishment. The effect of these initiatives will be on the longer cycle, and in time will undermine economic prosperity for those countries out-of-sync with competitive markets.

“Investment capital will gravitate away from such countries in due course, and many companies will remove them from the radar screen, so that short-term gains will be overwhelmed by uncompetitive postures imposed via tax, capital gains, constipating controls, restrictions and state-driven mandates.”

To make matters worse, Mining Weekly recently reported, South Africa’s mining’s next big crisis would be seen in Black Economic Empowerment (BEE) obligations.

Black ownership

The revised Mining Charter of 2010 sets a target of 26% black ownership of SA’s mining assets by 2014, and adds that all levels of management of mining companies should constitute 40% of the total. “Enforced empowerment is a high-cost and inefficient strategy for economic growth, and has led to a decline in FDI inflows and loss of competitive position. To add more is unwise,” warns Clarke.

His company, Global Pacific & Partners, is constantly monitoring the industry and selective specifics. It is mostly an advisory firm in the world’s oil and gas industries, and an advisor to governments, national oil companies, licensing agencies, multilateral institutions and companies in Africa, Asia, Latin America, the Middle East, Europe and Australasia.

Working from the company’s Johannesburg office, Clarke (with senior partner, Babette van Gessel in Holland) has built up the business and its portfolio based on intellectual endeavour, global networks, pioneering initiatives, and adaptations to various technologies.

Born in Zimbabwe, Clarke has acquired direct knowledge on over 120 countries visited around the world, on over 150 energy companies, and almost all state oil companies worldwide, allowing the firm to create a true unique global footprint.

Global Pacific & Partners hosts landmark international conferences and road shows for senior executives and governments, each one long-standing and an annual event, aligned with in-depth, rich-content strategy briefings. Most would say, the modern scramble for Africa has been a mixed blessing for the continent as it brought higher levels of economic growth and tax revenues to finance some social and infrastructural investment.

However, in a number of cases revenues from extraction, which should have also been used for critically needed development in the areas mining companies operate in, may have instead reduced the state’s incentive to impose a free and just taxation system, fuelled state corruption and caused environmental degradation, poverty, violence and other human rights abuses among others.

“This is a conventional myth,” says Clarke. “Resource gains do not cause these problems. They arise from governments and their mismanagement of the natural resource bounty, notably in flawed, failed and or pre-modern states, and hence are not inevitable.”

The lessons of Africa’s history are quite clear: democracies prosper only when economies and societies have achieved a certain level of structural complexity, and where economic development is directly linked to good governance, human rights, economic justice, debt relief, foreign investment, and corporate responsibility.

Countries in Africa therefore still face several challenges, but the renaissance in emerging Africa provides hope for some of the most challenged countries in the world, illustrating that it is possible to combat poverty, secure peace, increase prosperity, and widen the global circle of development.

Rizél Delano

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