Enclaves of wealth

Enclaves of Wealth and Hinterlands of Discontent:

Foreign Mining Companies in Africa’s Development

Edited by Gavin Hilson

Published by Third World Network- Africa (TWN – Africa) Copyright © Third World Network – Africa (TWN – Africa) 2010 TWN-Africa is grateful to OSIWA, TrustAfrika, Novib, Development & Peace and InterPares for their support in publishing this book.

Third World Network – Africa (TWN – Africa) P.O. Box AN 19452, Accra – North, Ghana Tel : 233 302 500419 / 511189 / 503669 Fax : 233 302 511188 Email : communications@twnafrica.org Website : www.twnafrica.org Design and layout by David Roy Quashie Printed by Qualitype Limited ISBN : 978-9988-602-03-1

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Table of Contents CHAPTER

PAGE

Introduction

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CHAPTER 1 Mining Sector Policy - Making and the Donor Community in and for Africa : Lessons and Future Options - Bonnie Campbell

1

CHAPTER 2 Strategies for Maximizing Mineral Revenue: The Zambian Experience - John Lungu and Sumbye Kapena

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CHAPTER 3 Mining Boom and Enclave Economy: Development Impact and Challenges in Mining Areas - Abdulai Darimani

52

CHAPTER 4 Hiding Conflict Over Industry Returns: A Stakeholder Analysis Of The Extractive Industries Transparency Initiative (EITI) - Sarah Bracking

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CHAPTER 5 Re - agrarianizing Rural Ghana: Can Farming - Based Alternative Livelihoods Reduce Illegal Gold Mining Activity?

- Gavin Hilson and Mohammed Banchirigah

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CHAPTER 6 Mining and Impoverishment: Beyond Direct Foreign Investment - Ray Bush

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CHAPTER 7 Organizing Small - Scale Artisanal Mining for Sustainable Livelihoods of Communities: The Regulator's Perspective - Ibrahim Bawa

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CHAPTER 8 Transformiong Artisanal and Small - Scale Mining for the Sustainable Livelihoods of Communities: Lessons and Options.- Oliver Maponga

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Introduction This edited volume brings together some of the papers that were presented at a conference organised in Accra, Ghana by Third World Network-Africa (TWN-Africa) and the Review of African Political Economy (ROAPE) in November 2008, on the theme: ‘Beyond Foreign Direct Investment in Africa’s Mining Sector’. The conference brought together activists from community groups and NGOs, officials from African government institutions as well as intergovernmental bodies and academics to discuss the state of mining on the continent and the experience of two decades of mining sector policy dominated by strategies for attracting foreign direct investment.

The event provided a good opportunity to share mining experiences and perspectives from across Africa as well as from outside on the impact a reformed mining economy has had on Africa over the past two decades.

There was significant consensus among delegates inter alia that large-scale mining is contributing minimally to African economies, indigenous artisanal miners needed to be empowered, and that mining contracts – and perhaps more specifically, royalty agreements – are in need of renegotiation.

Delegates critically reflected upon the terms under which multinationals had gained access to, and were operating in Africa’s mining sector; what the perpetual expansion of the large-scale mining economy has meant for the continent’s inhabitants; and, with the benefit of hindsight, which paths the continent’s newly reformed mining economies – Mozambique, The Democratic Republic of Congo and Liberia – should embark upon. The range of participants, drawn from many different organizations, ensured rich and engaging debates.

The conference took place against the backdrop of the then fast developing global financial and economic crisis and the resultant downturn in the prices of most of Africa’s mineral and metal exports. The decline in prices did not only signal the end of the longest price boom in recent memory but also intensified debates across Africa about the balance sheet of two decades

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of mining sector liberalisation and the consequent huge inflow of foreign direct investment into the continent’s mining sector. A month before the Accra conference, the first African Union Conference of African Ministers responsible for mineral resources development, held in Addis Ababa, adopted a Declaration which summarised some of the concerns governments had about the limited contributions of the mining sector to the continent’s development. The Declaration, among other points, underscored “the need for greater local beneficiation and value addition of Africa’s mineral resources and the enhancement of its industrial base through mineral sector upstream, downstream and side-stream linkages”.

In total, eight papers are contained in this volume. The first four papers explore various financial aspects of mining sector reform in sub-Saharan Africa. In the first paper, Bonnie Campbell provides a detailed historical overview of the mining sector reform experience in the region. She examines the impacts of the earliest mining sector reforms implemented, whether different actions have been taken in later reforms, and what options exist for the future. The author argues that reforms made in the past have had little positive effect on Africa’s populace, and that it is imperative that other countries also looking to reform their mining economies learn from these experiences.

The second paper, by John Lungu and Sumbye Kapena, offers a glimpse of the conditions which led so many African countries to reform their mining sectors. The paper focuses on the case of Zambia, providing a historical overview of mining policies in three periods of the country’s history: 1928-1967, when all the country’s mining companies were privatelyowned; a second period, 1968-2000, during which mines were state-owned; and a third period, 2001-present, during which mines have been re-privatized. Abdulai Darimani builds upon this analysis in the third paper, describing the mining regime in place in Africa, and revisiting how liberalization has triggered a rapid proliferation of transnational mining companies on the continent. The author furthermore – and importantly – investigates how this activity has impacted rural communities, concluding that liberalization has inflicted more harm than good. Sarah Bracking concludes this section by critiquing the Extractive Industries Transparency Initiative (EITI), an intervention which aims to bring together stakeholders to defeat the ‘resource curse’ perceived by some to be plaguing African and other

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developing countries. She concludes, however, that the rewards are too small for inviting extractive MNCs to assist ‘development’ – that it is perhaps better to explore alternatives.

The subsequent four papers look at a neglected segment of sub-Saharan Africa’s mining economy: artisanal and small-scale mining. In the first paper (and fifth of the volume), Gavin Hilson and Sadia Mohammed Banchirigah explain why the region’s artisanal mining economy is expanding so rapidly. The authors argue that this is largely due to a growing number of smallholder farmers ‘branching out’ into artisanal mining to supplement their earnings. The case of Ghana is used to illustrate this. Ray Bush, in the sixth paper, also looks at Ghana’s artisanal mining sector but in the context of land dispossession. He calls for the newly-elected government of the country to look beyond foreign direct investment, and to assist artisanal miners. Doing so, it is argued, could be the start of a process of genuine rural stakeholder empowerment and in the process, would significantly alleviate poverty. Ibrahim Bawa’s paper provides a detailed overview of Ghana’s small-scale mining industry. It complements the previous paper well by examining some of the challenges the government faces in bringing this sector into the legal mainstream. The final paper, by Oliver Maponga, serves as a reminder of the socio-economic importance of artisanal mining in Africa. It addresses a range of issues, including employment, regulations, and the roles different stakeholders must play if the sector is to be formalized.

Collectively, these papers, and other presentations made at the conference, offer fresh insight on the impact of the mining sector in sub-Saharan Africa. They more importantly provide new ideas on what changes need to be made to enable mining break out of its enclave and become a vector for more integrated and beneficial development across Africa. For this to happen wholesale changes must be made to laws, and the roles of mining companies, the state and communities redefined in policy.

Gavin Hilson

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Chapter 1

Mining Sector Policy-Making and the Donor Community in and for Africa: Lessons and Future Options Bonnie Campbell Faculty of Political Science and Law, University of Quebec, Montreal, Canada

Introduction: The Heritage of Past Reforms This paper addresses the following three questions:

1. What is the record of the past reforms of regulatory frameworks for mining in Africa initiated by the donor community?

2. How can these results be explained and what have been certain attempts to respond to the problems they have raised?

3. The present context : Current trends and future options Since the 1980s, at the recommendation of the international financial institutions, new mining regimes have been introduced in what can be described as a cumulative process of privatisation and liberalisation. For example, Ghana’s liberalized code of 1986 served as a model for that of Mali in 1991, with new versions subsequently introduced in order to align the former Malian code on more recent and increasingly liberalized conditions.

The reform of regulatory and legal frameworks that took place in Africa in the 1980s and 1990s created more favourable environments for foreign investment. In the process, however, the role of the state has been redefined, which is so profound that it has no historical precedent. In large part because

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of this, the reforms have had reduced institutional capacity, constrained policy options, as well as diminished standards in areas of critical importance, including social and economic development, and the protection of the environment. They have entailed as well, a direct attack on the capacity of states to exercise their sovereignty. It may, indeed, be argued that the emphasis over the last two decades by multilateral financial institutions on creating an environment favourable to attracting foreign investment in the extractive industries, through liberalisation and privatisation but in the absence of measures for meeting development objectives and in the presence of fragile state forms, has, in fact, impeded development. In the absence of redistributive measures, such an approach may have contributed as well, even if inadvertently, and may continue in the future to contribute to social exclusion and inequality in the countries concerned and consequently, to the increasing instability and potential conflict. Strong evidence suggests that the latter tendency will continue in an increasing number of situations if policy changes are not introduced (UNCTAD, 2005). The results of recent research (Campbell, 2003) were summarized for discussions at UNCTAD using the following categories identified by the organization: 1) Size and distribution of budget and export revenues; 2) Employment and linkages; 3) Industrial diversification and infrastructure; 4) Environment and local communities; and 5) Broader social development issues.

Two of the above categories will be used to summarize this broader topic. The first concerns the contribution of the sector to government receipts and the second, the impact of mining activities on the environment and local communities.

The Size and Distribution of Budget and Export Revenues from Existing Resources

Questions about the mine taxation agreements in place in sub-Saharan Africa are now being raised. Two decades of reform, during which emphasis was placed on keeping modest, the level of royalties, duties, as well as other forms of taxation, has brought this issue to the fore. Whilst obviously

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a very complex subject that varies widely among different mineral sectors and country situations, the experience of Guinea, where considerable research has been carried out by the author, will be drawn upon throughout.

According to the 2005 estimates of the World Trade Organisation (WTO), Guinea1 has 20 billion tons of bauxite reserves which are exceptional both in terms of their quantity and quality. The country is responsible for approximately 40 per cent of world commerce of this resource, as well as between 30 and 40 per cent of the supply of bauxite to the United States of America (WTO, 2005b). National production remained at approximately 17 million tons for nearly ten years, and experienced a slight decrease to 16 million tons in 2004. The value of bauxite exports exceeded US$292 million, which meant that this resource represented over 40 percent of the value of the country’s total export receipts if all sectors are considered.

But whilst the mining sector has represented as of 1995 on average, 80 per cent of the value of national exports, since then it has contributed, on average, less than 20 per cent to central government revenue. This situation is in stark contrast to that which existed in the 1980s when the contribution of mining revenue to the fiscal receipts of the state exceeded 70 per cent.

There is a considerable amount of speculation and debate as to the future development of this potentially very rich sector. Rather than projected developments, what will be discussed here is the role that the sector has played during the decade since the reform of the country’s mining code in 1995 under the auspices of the Bretton Woods Institutions.

According to data produced by the International Monetary Fund (IMF), the contribution of the mining sector to Guinea’s total exports in 2004 represented 92.3 per cent, which could be subdivided as follows: bauxite: 40.5 percent; alumina: 22.6 per cent; diamonds: 6.7 per cent and gold: 22.6 per cent (IMF, 2006, p. 48). The decrease in the country’s mining receipts which include exports of gold and diamonds but of which the bauxite and 1 This section is based on Bonnie Campbell “Walking a fine line, Liberalisation, Policy Space

and the Challenges of Development: Lessons from the Guinean Bauxite-Aluminium Sector”, Presentation to the World Bank Group Extractive Industries Advisory Group, Oil, Gas, Mining and Chemicals Department, IFC, Washington: June 20, 2006. To be published in a forthcoming volume of the Political Economy of Mining in Africa, in Y. Graham and B. Campbell (Eds).

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alumina sectors represent by far the most significant share, has been such over the last years that the contribution of the mining sector to central government revenue has slipped from 73.7 per cent in 1986, to 26 per cent in 19962 and to 18.27 per cent in 2004 (IMF, 2006), with projected figures of 14.8 per cent for 2007 (see Table 1).

Table 1: Guinea: Central Government Revenue, 2000-2007 (in billions of Guinean francs) 2005 2006 2007 2004 (proj.) (proj.) (proj.)

Revenue and grants

2000

2001

2002

2003

719.8

670.2

876.9

952.7 1,027.4 1,325.2 754.1

1,497 1,701.4

Mining sector revenue

594.5

873

936 1,153.6 1,311.3 1,509.7

146.4

166.6

145.4

105.9

171

195.4

Revenue

Share of mining revenue in total governmental revenue (excluding grants)

763.9

177

223.6

24.63% 24.86% 19.03% 14.04% 18.27% 15.34% 14.90% 14.81%

Based on: International Monetary Fund (IMF), Guinea: Selected Issues and Statistical Appendix, IMF Country Report No 06/25, Washington D.C.: IMF, January 2006, p.55 and IMF, Guinea : 2004 Article IV Consultation – Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion, IMF Country Report No 04/392, Washington D.C.: IMF, December 2004, p.29.

Just over ten years after the adoption of the reforms aimed at liberalizing the mining sector, it is recognized now that, ‘[al]though appropriate, all of these reforms to the mining sector failed to produce the positive impact on the national economy that had been hoped for’ (WTO, 2005a, p. 9). The paradox of the decline in the contribution to fiscal receipts is all the more striking in view of the relative stability of production figures (as illustrated in Figure 1). These trends take on particular importance when it is the leading Integrated Framework, Guinea : Diagnostic Trade Integration Study, August 22th 2003, p.3, [PDF] http://www.integratedframework.org/files/guinea_dtis-vol1_25nov03.pdf

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mining sector concerned – that is, the sector on which the country depends to meet performance criteria of the international financial institutions and more basically, to permit the restructuring and diversification of its economy with a view of stimulating growth and contributing to poverty reduction.

Figure 1: Guinea – national production of bauxite, 1975-2003

Based on: Raw Materials Data, November 2005

The study from which these observations are based draws attention to the manner in which price negotiations have taken place and specific contracts negotiated over time. Moreover, as will be seen, the outcomes of certain recent negotiations appear neither consistent with the objectives of the government nor with those of international financial institutions – that is, to secure stable revenue for the country from its rich mining sector.

There are obviously enormous differences concerning the capacity of different countries to benefit from budget and export revenues from existing resources. The varying conditions rest on a wide range of issues such as the

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terms of fiscal and customs incentives set out in mining regulations, and the nature of the negotiations which take place around specific contracts. An analysis of the experience of Guinea in comparison to that of different African countries illustrates that trends in the country with regard to disappointing budget and export revenues accruing from mineral resources, are in fact, part of pattern.

With regard to the nature of fiscal and customs incentives, two other examples illustrate overall trends towards increasing liberalization. In the case of Mali, incentives offered to attract investment in the 1999 mining code include a decrease in government participation in the shares of companies, taxes and amortization. In Burkina Faso, the revised 2003 mining code dealt primarily with a reduction of tax rates (taxes on trade and industrial profits and taxes on investments), the introduction of tax exemptions on activities during the preparatory phase, and the extension of benefits to subcontractors.

The objective in both cases translates a desire to use regulatory frameworks to create conditions to attract investment into these mineral-rich economies. From hindsight, however, one can document the very real negative implications of such generous conditions and in this regard, it is not very surprising, particularly in the context of strong metal prices that the pendulum should have swung in a different direction. This has taken place in a range of countries, and is illustrated effectively by the case of Tanzania (Edwin, 2006), where a number of initiatives have been undertaken to revise past contracts. Key concerns in this case revolved around past agreements that the government had entered into with investors, resulting in meagre returns and royalties, lack of transparency in the mining sector and at times, poor social relations. These led to the government carrying out in-depth evaluations to determine why revenue from mining activities is so small.

Companies were obliged to pay US$200,000 annually to local authorities and a royalty of 3 percent of the value of exports to the government.

Subsequently, legislators were demanding better profit-sharing arrangements and fuller accountability to the communities where mines are located.

With regard to the nature of the negotiations which take place around specific contracts, certain observations have been made as to how these can impact unfavourably on government revenues as did a study undertaken in

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2005 for the Guinean Ministry of Mines and Geology (Otto, 2005). Among other things, the study recommended abolishing the procedure permitting the negotiation of individual and parallel fiscal agreements for specific mines project. Through the negotiation of such specific agreements, companies can benefit from fiscal exemptions which are over and above the advantages already set out in the 1995 mining Code, and which the authorities in fact attempted to abolish in October 2004, further to one of the key recommendations of the Public Spending Review by the World Bank which was linked to the implementation of the country’s PRSP (WTO, 2005b).

Nevertheless, mining companies have continued to benefit from a special status and as has been noted by the WTO: ‘The incentives given to approved mining enterprises are still much more attractive than those for non-mining enterprises under the Investment Code’ (WTO, 2005a, p. 54).

The implications for central government revenue and consequently, for social expenditure and the future overall composition of public spending of at least one of the more recently signed agreements for large projects for transformation of Guinean bauxite, merit special attention. In October 2004, the Minister of Mines and Geology of Guinea signed an agreement with Global Alumina Corporation (the ‘Global Agreement’) providing for the construction and beginning of operations permitting bauxite to be transformed locally. The agreement provides a good illustration of the risks which are presented by this type of negotiation. This Basic Agreement, as well as the amendment that was signed in May 2005 that modified certain terms of the former, subsequently unanimously ratified by Guinea’s National Assembly and then adopted two months later by presidential decree (Global Alumnia Corporation, 2005), was also examined by the study of the Guinean Mining Taxation System, which concluded that (Otto, 2006, p. 9): - The agreement bears little resemblance to the fiscal system in the 1995 Code Minier and the 1996 Convention; - The initial agreement fiscal terms, before amendment, are so much in favour of the investor, that it is doubtful whether future politicians will honour it. In the context of global best practice, the agreement clearly does not provide a ‘fair’ share to government;

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- The 2005 amendments are an improvement but will act as a dangerous precedent, as future investors will demand similar treatment.

The study, Guinean Mining Taxation System, illustrates that a tax system ‘[…] which takes into consideration international competition’3 can, in theory, by compatible with a tax system which offers an appropriate portion of taxes to the state. However, in spite of the clauses present in current mining regulations, the conditions governing the distribution of mining revenues presently depend on specific contracts which can be negotiated between the state and companies. The content of such agreements depends consequently on the negotiating capacity and institutional coherence of the government concerned, both of which have been significantly affected over the last years, notably by the forms of liberalisation which have been introduced into the country; a point to which we shall return in the second section of this article.

The Environment, Local Communities and Broader Social Development Issues

The issues in these broad areas are as numerous and complex. Two will be referred to briefly here. The first concerns past trends with regard to types of provisions contained in evolving regulatory frameworks and the second concerns the capacity of governments or lack of it, to ensure enforcement of regulatory measures. Contrary to what might be assumed, there has not been a trend ensuring that positive modifications included in more recent regulatory frameworks which improve social and environmental protection for example, will be incorporated into more recent mining regimes.4 In this 3 Organisation des Nations unies pour le Développement Industriel, Guide de l'homme d'affaires. Investir en Guinée. Guinée : pays aux ressources multiples, pays d'avenir..., ONUDI, [PDF] http://www.unido.org/fileadmin/import/21714_Guinea_InvestorsGuide_French.pdf, p.21.

4 The following section is based on the research of Gisèle Belem who completed a doctorate degree at the Institut des Sciences de l'Environnement at the Université du Québec à Montreal (2008) and on her forthcoming chapter: “Development policies and poverty reduction: Lessons from the Malian gold mining industry” to be published in The Political Economy of Mining in Africa, Y. Graham and B. Campbell (Eds).

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regard, positive developments can be illustrated by the Malian experience for, in contrast to the 1991 mining code, the 1999 code takes into account, for example, the relocation of populations affected by mining: The relocation and resettlement of populations whose presence on mining sites might prevent extractive activities will proceed at the request of a mining title holder. The title holder will be responsible for the displacement and resettlement on a site chosen to this end.5 Moreover, the 1999 code requires the creation of a community development fund in which US$5000 must be invested every month. This fund is managed by a committee comprising representatives from the administration, local collectives and the mine; and, it is used to finance projects selected by the said committee. In addition, mining directors have a discretionary fund which is managed by the director of every mining site for development project purposes.6 Since 2000, payments are also being made to the patent title for the benefit of the local collectives. Together, these funds are used to finance community development projects. Additionally, mining companies are required to provide housing, as well as sanitation, schooling and leisure infrastructure to miners and their families. Finally, with respect to employment, companies are required by the 1999 mining code to respect general working conditions and give preference, given equal qualifications, to Malian personnel.7 Health and occupational safety issues are governed through the mining code by regulations set forth for protection and prevention, in conformity with international norms established for occupations dealing with the transportation, use or storage of explosives.

The 2003 Burkina code is in most respects, similar to the Mali 1999 code. There are, however, certain noticeable distinctions. Although it is more recent, it does not take into account the displacement of populations and MMEE (Ministère des Mines, de l’Énergie et de l’Eau), Code minier, 1999, Article 69.

[Mali Mining Code]

5

The funds amounts to US$100 000 in the case of Sadiola, US$5000 per month in the case of Morila, and US$100 000 in the case of Yatela.

6 7

MMEE, op.cit. Article 126.

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does not require of the mining companies the preferential training or employment of Burkinabe personnel. This relaxation of requirements in the Burkina code is also noticeable from the point of view of the environment.

With regard to environmental concerns, again, the Malian experience is instructive. Currently, there are two mining codes which apply to environmental management in the mining industry in Mali. The 1991 code was applied by the three mines active in 2006: Sadiola, Yatela and Morila, and the more recent mining code which is more demanding with respect to the environment, was only applied by new mines. Mining permits are issued for a period of 30 years, renewable for 10 years until a mine’s reserves are exhausted.8 A permit is issued as long as the following are provided: a feasibility study, a mining development and extraction plan containing an environmental impact assessment, a strategy for attenuating impacts and a plan for environmental follow-up. Mining permit holders must also set up and invest in a trust fund which will serve to cover the costs of preservation and rehabilitation of the environment. Recognition of these requirements is particularly noticeable in Mali’s mining codes.

The 1999 mining code is much more demanding than that of 1991. The latter imposes virtually no obligations on mining companies in the area of environmental protection. Rehabilitation work and responsibility for incidents are mentioned only in passing. However, gold mining entails major ecological risks, including deforestation, soil erosion, water table and surface water pollution caused by chemicals used in the extraction process, air pollution caused by smoke and dust, and the disappearance of fauna due to noise. The 1999 mining code has taken into account these environmental risks. As discussed above, the majority of mines are still operating under the 1991 code. In spite of this situation, however, companies are carrying out environmental impact assessments, as recommended in the 1999 code.

The 2003 Burkina mining code contains environmental demands similar to those of Mali. However, there is one important difference between this code and both the Malian and the older Burkina codes, namely, the exemption of environmental requirements during the exploration phase:

8

MMEE, op.cit., Article 43.

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All mining title applicants who wish to carry out work potentially harmful to the environment on their site must, with the exception of exploration permits and quarrying authorizations, in compliance with the environmental code, provide a notice or, as the case may be, undertake an environmental impact assessment along with a public enquiry and a plan for attenuating or reinforcing negative and positive impacts.9 This exemption also applies to the restoration of explored sites. But as specifically indicated in the 1999 Mali mining code, exploration permit holders must carry out restoration work every time prospecting activities entail:10 Underground work using galleries or wells; the creation of an accumulation till; work on accumulated materials; probes affecting water resources or modifications of the topography in excess of one metre.

This exemption, as with fiscal exemptions, is a significant incentive which might explain in part the important increase in the number of mining permits delivered in Burkina since 2004. Thus, although it is taken into account, it seems that environmental preservation remains a low priority, in light of the relaxation of obligations apparent in more recent West African mining codes.

Concerning the capacity to ensure enforcement of regulatory measures, again, Mali provides an interesting illustration. The main environmental problem caused by mining in Mali relates to the use of cyanide for the treatment of ore. This is particularly significant at the Sadiola Mine, where recent modifications in the extraction process have led to the application of a greater quantity of cyanide. Specifically, the amount of cyanide used has increased from 500g to 1500g per metric ton, resulting in elevated concentrations of the chemical in tailing dams from 50mg/l (which is the maximum recommended by World Bank) to 150mg/l (CSA, 2004). Mismanagement of the chemical led to the death of animals in 2002 and birds (107 cases) in May 2003 (DNGM, 2003). Water samples collected during the same period 9 Ministry of Mines, Quarries and Energy (MMCE). Law No. 031-2003/AN on the Mining Code, Burkina Faso, July 31st, 2003, Article 77.

10

MMEE, op.cit., Article 117.

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revealed a cyanide concentration of 300mg/l when the maximum recommended is 50mg/l. The mining company subsequently used detoxification reactants to reduce cyanide concentrations and undertook some research into recuperation of cyanide and its impact on the death of birds, both alone and in combination with other reactants.

Reports on water quality remain contradictory. Whilst a 2002 analysis undertaken for the Commission for the Monitoring of Mining Companies suggests that well water consumed in Sadiola and Farabakouta contains arsenic levels in excess of accepted world standards, the CSA Group’s report concludes that this water is of good quality. In Yatela, however, heavy metal concentrations (arsenic and lead) in excess of WHO recommended levels have been measured in groundwater. At the end of 2003, an increase in arsenic concentration was recorded at the Morila Mine. Moreover, a cyanide tailings spill was reported at this mine in 2003, causing the death of a few animals.

Currently, several health problems (miscarriages, illnesses, etc.) have been reported in studies by international NGOs, most notably, those of Les amis de la terre (2003), and Coalition dette-dĂŠveloppement (2003).

However, to date, no study has been undertaken at the national level to assess the impacts of water quality and the environment in general on public health. As of 2006, two studies were underway: One socio-demographic, and the other epidemiological, both aimed precisely at identifying these impacts.

These studies have been financed by SEMOS and were carried out by the Malian National Institute for Public Health Research. The first study, which was socio-demographic in nature, was completed several years ago. This study focused on the perceptions of the communities regarding the impact of mining activities on their health. The study found that it is strongly believed by the population that the high proportions of miscarriages which have taken place recently in certain villages located in the mining area were caused by mining activity. In these areas, the highest proportion (0.8) has been found in the village of Yatela with four miscarriages per five pregnancies for the last five years. This must be compared to a proportion of 0.37 for the whole mining area (14 villages around Sadiola and Yatela) and a proportion of 0.36 for the control area (seven villages of a distance of at least 20 km from the mines). However, although the communities perceive health

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problems to be related to mining activity, only the second study which has as its objective: to establish the medical diagnosis, would permit confirming these presumptions. After several years, when the findings of the second were finally made public, these suggested that the results of the first were inconclusive.

Generally speaking, environmental regulations and the capacity of government authorities to enforce them have been insufficient with regard to mining activities. Thus, the use of cyanide in the extraction process has neither been taken into account by the mining codes or any specific regulations.

AngloGold-Ashanti, the company running all three currently active mines, has taken this aspect into account by voluntarily adhering to the ‘International Code for the Management of Cyanide’. Compliance with this code is being monitored by foreign external auditors. Reports evaluating mining companies have recommended that the DNGM adheres to this code for monitoring cyanide use in Mali.

It is important to note that this voluntary code does not take into account all the activities associated with safety or the environment during planning stages, the construction of storage systems for residual products or the longterm closure and rehabilitation of the mine. Given that problems associated with the increased usage of cyanide and acid mine drainage persist, plans for the closure of mines, notably Sadiola, have been revised. The CSA Group estimates that the costs of closure and long-term monitoring of this mine should be revised upwards because ‘acid mine drainage is likely to be a real problem over the medium and long term at Sadiola’.11 Problems with mine closure have been particularly significant at the Syama Mine, as no closure plan had been devised by its operating company, BHP. Randgold, which took over the mine, drafted a closure plan, but according to a 2004 report by the CSA Group: • Tailings piles and the walls of the mine are unstable and dangerous; • Tailings dams show leaks and signs of water contamination; and • Surface water monitoring is inadequate.

11

CSA Group, op.cit.

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Moreover, the mine’s closure caused a deterioration in existing socioeconomic conditions through the closure of the clinic, the break in the water supply, and interruptions in garbage collection (Thiam et al., 2004). In 2004, the Syama Mine was acquired by Resolute Mining and this company has since committed itself to undertaking the progressive rehabilitation of the various areas of activity once the Syama Mine becomes operational again.12 From an environmental perspective, mining companies are conforming to the 1999 code, but setting associate targets on their own. Mali, for example, does not have any environmental standards in the areas of water quality, dust or air pollution. The country has environmental regulations which specify that companies must protect the environment and behave in conformity with ‘high international standards’. Consequently, mining companies follow World Bank, World Health Organization or South African standards when addressing issues of environmental protection. No follow-up or corrective measures currently exist.

With regard to the environment, as the Malian experience illustrates, although there may in fact be provisions for impact assessments, research carried out in this area points to the constraints weighing on the government because of the absence of resources, its lack of access to information and consequently, the lack of headway made thus far in this regard (Soulemayne, 2000). Similarly, in Madagascar (Sarrasin, 2002), in spite of the introduction of legislation to ensure environmental protection and a new 1999 mining code, there is good reason to question whether the government of this country, just as that of Mali, is in fact in a position to ensure the enforcement of environmental standards should they not be respected by private operators, for the reasons pointed out by the World Bank: ‘After several years of budgetary reductions, Government institutions lack the human and financial resources to enforce the law, especially in the context of decentralization’ (World Bank, 1998, p. 6).

Under the circumstances, although countries such as Mali and Madagascar do possess legislation in the area of environmental protection, its application is far from assured, particularly in the context of the Resolute Mining Ltd, “Development Overview : Syama ”, [Online] http://www.resoluteltd.com.au/res_d/syama.html, 2006.

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increased liberalization contained in their respective mining codes. This situation appears to leave responsibility for the monitoring and enforcement of environmental norms largely in the hands of private operators and, because of the heritage recognized by the World Bank, there is good reason to have reservations concerning the capacity of local states to question or remedy the resulting practices.

How Can These Results be Explained and What Have Been Certain Attempts to Respond to the Problems They Have Raised?

Past approaches taken to reform mining regimes clearly attempted to provide a general template for mining codes with the objective of attracting foreign investment, disregarding to a large extent the diversity of situations and the specificities of different countries which are characterized by distinct policy traditions, trends and objectives, reflecting an enormous variance with regard to history and context. By way of illustration of this uniform approach, the World Bank’s 1998 publication, Assistance for Minerals Sector Development and Reform in Member Countries (Onorato et al., 1998), and notably its Appendix 2, ‘Summary of the Essential Elements of a Modern Mining Code’, reads as both a blueprint and a call for financial support for the implementation of the recommendations proposed in 1992, Strategy for African Mining (World Bank, 1992). Accordingly, ‘There are more than twenty projects where the World Bank has been involved in the 1990s in the process of reviewing and revising the laws which affect minerals development in developing countries and countries in transition to market economies’ (World Bank, 1992, p. 14). Whilst these countries of Africa, Asia, Eastern and Central Europe and Latin America are recognized to vary greatly (World Bank, 1992, p. 14-15): They nevertheless share the common objective of reviving and expanding development of their minerals sectors by stimulating greater private sector participation.

Although the policy, legislative and regulatory solutions adopted by these countries may have different features, some common themes are apparent. ‘Successful’ countries have well articulated policies and

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legal and institutional frameworks which support small and large scale mining without imposing uneconomic fiscal burdens.

Examples of successful countries identified included Chile, Indonesia, Papua New Guinea and in Africa, Ghana. In the latter, the resurgence of the gold mining industry was underlined and among the reasons given were the government’s commitment to its private sector minerals development policy, the adoption of new mining laws in 1986 and the privatization of the State Gold Mining Company’s assets in the 1990s. Moreover, it is noted that ‘Taxes are not burdensome, and substantial foreign exchange sales revenues can be held offshore’ (World Bank, 1992, p. 15).

The study identified the following 13 essential elements of a modern mining code: 1) the scope of the law, 2) institutional framework, 3) participation of affected people, 4) access to mining activities, 5) security of tenure, 6) regulatory aspects, 7) private land owners, 8) ancillary licenses and permits, 9) other project activities, 10) investment contracts, 11) fiscal issues, and finally, 12) environmental issues and 13) social matters.

In order to envisage a broader developmental framework for the mining sector, it is useful to analyze the ‘development model’ which informed past reforms and the institutional reforms which were introduced to accompany and legitimize that model. It is useful as well to examine how current policy recommendations have attempted to respond to the problems and the contradictions which the latter patterns have produced.

Three characteristics of the process of reform of mining regimes which has evolved over the last twenty years in Africa merit special attention.

First, what was privileged was an approach informed by the needs of investors which were formulated in answer to questionnaires designed to this effect in order to determine what conditions might best attract investment.13 As a result, consideration of what was needed was premised on a sectoral approach rather than one which might have sought to articulate the 13

This can be documented by the following World Bank (1992) and Naito et al. (2001).

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contribution of the mining sector into broader macroeconomic objectives involving inter-sectoral linkages for example, with a view of seeing to what extent the sector could contribute to broader developmental objectives. The approach was premised on the idea that the sector’s role would be primarily one of bringing fiscal receipts. In fact, little provision, if any, was made to build eventual backward and forward linkages, such as the possibility of value-added processing of minerals, which in a resource extraction economy would normally be considered important development objectives. Such an approach can be seen as obviously quite distinct from one which foresees a transformative role for mining with the sector acting as a catalyst for change to the rest of the economy.

Second, with regard to the environmental effects of mining activity, and subsequently, the social impacts which remained much less developed than other aspects of regulatory frameworks, these impacts were seen as side effects which could be regulated by the introduction of performance standards. The voluntary application of such standards was seen to rest above all with the mining companies rather than being considered as issues which were clearly interrelated and integral parts of development strategies entailing overriding government responsibility. In this perspective, concern for activities of small-scale miners may be seen as somewhat of an ‘after thought’ to be added on to a model which was concerned above all, not with national development, but rather with the introduction of a specific form of investment-driven ‘export-led growth’, introduced in a context of the indebtedness of the countries concerned and often through structural conditionalities.

Third, and most important, underlining the above approaches of the 1980s and 1990s, one trend stands out above all others and it concerns the redefinition of the role and functions of the state and the new delineation between public and private spheres of authority which have accompanied this redefinition. It can be argued that these changes have had central implications; not only for the social and economic development of the countries concerned, but have also entailed implications for the legitimacy of the activities of mining companies and of states themselves. These implications do not seem to have received the attention which they deserve.

In this regard, in the policy environment of the 1980s and 1990s and under the leadership of the World Bank Group:

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[The] new agenda advocated comprehensive privatisation of state companies, an end to restrictions on foreign ownership and the repatriation of profits, lowering rates of taxation and royalties, restructuring labour laws to permit greater flexibility, and the termination of performance requirements such as those mandating local sourcing or local hiring. In addition, mining legislation had to be rationalised, administrative processes simplified, technical services to the industry (such as modernisation of the mining cadastre) improved and ‘subjective’ elements of bureaucratic discretion removed from the permitting and approvals processes.

[Szablowski, 2007] These were the policy implications which accompanied the major redefinition which was recommended and in fact introduced, concerning the role of the state. In its report, Strategy for African Mining, 1992, the World Bank set out that the role of government was to create a suitable environment for the private sector. This required, ‘A clearly articulated mining sector policy that emphasizes the role of the private sector as owner and operator and of government as regulator and promoter’ (World Bank, 1992, p. 53). As Szablowski (2007, p. 34) notes, government was to stop ‘being an owneroperator pursuing social or political goals through its operational involvement in the mining industry’. Instead, governments were encouraged ‘to become efficient and ‘apolitical’ regulator[s]’. Their role was to facilitate private investment. The myriad of policy that the World Bank promoted through the package of privatisation and liberalisation reforms was accompanied by the assertion that the early reformers were ahead of their competitors. Africa’s experience over the last 20 years has been a cumulative process of reform leading to several generations of increasingly liberalized mining regimes.

One of the consequences of the liberalization of the African mining sector has been the way in which past public functions of the state have increasingly been delegated to private operators. These include service delivery and also rule-setting and implementation. The tendency has been for ‘an increased (and often reluctant) assumption of state – like responsibilities by transnational mining enterprises at the discreet behest of weak governments’ (Szablowski, 2007, p. 120).

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Another coping strategy adopted by states to deal with new mining regimes was one of ‘selective absence’. As a result, ‘the retreat of the state from the mediation of socio-economic relations has left private enterprise increasingly subject to social claims’ (Szablowski, 2007, p. 60). The resulting blurring of responsibilities and ambiguities which such situations may at times produce results in companies finding themselves dealing with the demands and expectations of communities, with the risk of potential degeneration into conflicts and the resulting growing concern of companies with the ‘securitization’ of mining activities.

The issue of the weakened institutional and political capacity and consequently of the regulatory capacity of host governments, as Szablowski has underlined, is particularly salient. As legitimacy and regulation are interdependent products of legal processes, the absence of attention to such issues can only detract from the establishment of regulatory terms which are deemed legitimate.

The responses to the issues of the legitimacy of the operation of private operators which have arisen in large part because of the weakened institutional and political capacities of states have been of three types. In the first two, the issue that is being debated through the resulting process concerning the rights and obligations of enterprises is ‘the regulatory terms on which different audiences are willing to find that the entitlements of transnational enterprises will be deemed legitimate’ (Szablowski, 2007, p. 65). In the third, the answer is to turn to direct forms of ‘securitization’ through the employment of private security forces.

A first response to issues of legitimacy has been the emergence of a complex body of norms and standards which in large measure have their origin in the multilateral arena. This elaborate set of standards concerns a wide variety of areas, including, for example, environmental impact assessments (EIAs), and involuntary resettlement (IR) of project-affected people, and which collectively can be seen as the World Bank Group (WGB) safeguard policy regime. These norms and the practices which accompany them have been referred to by Szablowski as constituting a new ‘transnational legal system’. Whilst the body of these continually-evolving standards is obviously very detailed and substantial, these developments raise several difficulties. These include the issue of the local appropriation of the new body of norms and how they cohere with national policy objectives, their

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segmented nature as a result of dealing with specific areas, or again, the often unresolved question of the capacity of states to monitor, enforce and if necessary, deliver remedial solutions. Paradoxically, these issues, which the new regulatory frameworks were intended to resolve, are likely to pose problems of legitimacy for mining operations in the future.

There are, moreover, several other drawbacks concerning the manner in which these new norms have emerged and the practices which accompany them. An additional one is the preference for technocratic over politicallylegitimating processes among project sponsors and corporate-oriented transnational law-makers, such as the Multilateral Investment Guarantee Agency (MIGA) and the International Financial Corporation (IFC) (Szablowski, 2007). This option raises problems of legitimating which have not yet been addressed. For in the routine application of its social provisions, the WBG safeguard policy regime lacks the oversight required to ensure that its goals are being achieved. There is also the difficulty related to the forms of participation which accompany the implementation of the WBG safeguard policy regime.14 Finally, and most importantly, the emergence of a body of norms and standards that have their origin in the multilateral arena, as with EIAs, legitimizes the operation of private operators whilst failing to clarify the regulatory responsibilities of governments. The current process may allow governments to shift the locus of responsibility for what were previously considered state functions (clinics, roads, infrastructure, etc.) to the private operators of large-scale mining projects. Such a transfer, however, not only silences the legitimate and, indeed, necessary right of governments to offer services to their populations, a precondition to 14 Szablowski (2007) illustrates this issue with regard to the controversial policy of Involuntary Resettlement (IR). The argument made is that IR Policy represents a normative change as compared with former state legal regimes. This is because of the manner in which the various responsibilities for policy implementation, including fact-gathering, local consultation, resettlement plan design, are assigned to the project sponsor. As a result, the form and content of the involvement of project-affected people are determined by the companies participating in the process and their input is mediated by the supervising agency via the company’s reports. Thus ‘project-affected persons […] are not parties to the private contractual relationship that exists between the WBG agency and its client’. They are, therefore, denied rights of access to information and decision making that affects their IR. Szablowski (2007, p.119-120).

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their being held publicly accountable, but also contributes to obscuring the issue of government responsibility itself.15 In a parallel manner to the introduction of norms and standards to ensure the legitimacy of the activities of private operators in response to the weakened institutional and political capacities of states in many of the mineralrich countries of Africa, a second response has been the tendency on the part of multilateral financial institutions and certain Western governments to suggest that such issues, which are in fact deeply-rooted historically, institutional and country specific, can be treated as ‘weak governance’.

According to this approach, they can be resolved by the introduction of the appropriate set of good administrative practices and procedural measures and monitored using ‘governance indicators’. This is problematic for several reasons. Such an approach introduces parameters which seek to quantify the performance of historically-constructed, country-specific, highly complex institutional relations, around notions which are themselves the source of evolving definitions, the object of debates, as well as at times highly subjective. Examples include ‘government effectiveness’, ‘regulatory quality’, ‘voice and accountability’. The increasing technicization of decision-making processes runs the risk of sidelining important substantive debates and notably of depoliticizing issues such as resource distribution which may then be treated as a technical question when it is clearly a political one.

Consequently, these issues are difficult to track, monitor and measure with indicators because they often involve political choices and not only technical decisions.

Moreover, in the context of an overriding emphasis on technical and administrative aspects of ‘governance’, current proposals to contribute to ‘capacity building for resource governance’ in developing countries, unfortunately, miss the key point that past reform measures, which have sought to open up the extractive sectors for investment, have been implemented in a

15 Referring to one aspect of this broader process, EIAs, Szablowski (2007) notes that their most significant feature ‘is that it does not have any mechanism for fixing the ‘social responsibility’ of government’…‘The decision-making architecture of EIA provides no place for discussing the issue of governmental responsibility for social and environmental burdens that will not be assumed by the project proponent’ (Szablowski, 2007, p.57).

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manner that has severely weakened the political and institutional capacity of local governments. Consequently, it becomes a circular argument to call for the reinforcing of local capacity if the nature of past and ongoing reforms which weaken local capacity is not questioned.

Guinea provides a particularly interesting example of these issues and more specifically, the role of the multilateral financial institutions in the area of improving governance. Whilst the more recent recommendations that have been proposed by the WBG point to the need for greater transparency and accountability, in practice, the resulting policies proposed remain largely ‘procedural’ rather than ‘substantive’ in nature. They have been directed at improving administrative and management issues and not the relations of which such procedural issues are the reflection. Consequently, taken alone, they treat the symptoms of a particular ‘politics of mining’ and not the relations of influence and power which make such dysfunctional processes possible.

Similarly, with regard to the negotiations of particular mining contracts, as noted, the conditions governing the distribution of mining revenues have most frequently depended on particular agreements which have been negotiated between state representatives and specific companies. The largesse of the concessions contained in some of these contracts reflects not only the often weakened technical negotiating capabilities of the government representatives concerned, but as well, the nature of the political processes and modes of political and social regulation which have been perpetuated over the last decades.

In the case of Guinea, policy reforms framed in terms of the improvement of the ‘management of resources in the extractive sector’ appear to legitimize a certain ‘politics of mining’ which could hardly be seen to be compatible with promoting sustainable development and ushering in a transparent and accountable political process. In fact, as the present situation in Guinea suggests, it is worth questioning whether the past patterns of reform of regulatory regimes initiated by the multilateral financial institutions have not paradoxically at times proven surprisingly compatible with the prolonging rather than the redefining of forms of social and political relations which are likely to engender corruption and lack of transparency.

In this regard, and to take this example one step further, in spite of the recommendations in 2000 of the Extractive Industries Review (EIR) to the

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effect that the World Bank Group should ‘develop explicit governance criteria, transparently and in a participatory manner, which should be met before investments for the extractives industry take place’, these conditions do not seem to have been heeded in the case of policies pursued in mineralrich countries such as Guinea or the DRC since the publication of these recommendations.

In the context of increasing mineral prices, three mega projects have been negotiated in the bauxite and iron ore sectors in Guinea. Concerning one of these mega projects, that of BHP and although much has happened concerning the project since that time, the IFC announced in September 2008 that it would be investing US$500 million in a proposed mega alumina project with BHP in Guinea, which would include a huge bauxite mine and port facilities. The total project is estimated to cost US$5 billion which, with the participation of the IFC, will make it even bigger than the ChadCameroon pipeline project. Such involvement of the World Bank Group goes directly against the recommendations of the EIR, which stipulated that the WBG should not support projects in areas characterized by poor governance.

The third type of response to the problem of weakened institutional capacity is the growing tendency towards the ‘securitization’ of mining operations through the hiring of private security and policing forces by mining companies. Here again, the Guinean experience is revealing, as illustrated by BHP, which has recently been given the authorization by the Guinean government to hire its own police force in order to ‘securitize’ the operations of its mega project.

The Present Context: Current Trends and Future Options

Among the issues most likely to play a central role in shaping mining sector policy and facilitating an eventual paradigm shift, whilst in no way exclusive of others, are the following: 1. The renegotiation of mining contracts and the revision of mining regimes in order to enhance the developmental potential of mining; and 2. The issue of policy space and the development of policy options.

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In terms of the former, the response to the disappointing results in terms of local benefits emanating from mining activities, the numerous calls for the revision of fiscal, legal and environmental frameworks and mining contracts in countries such as Liberia, Zambia, Tanzania, Guinea and the Democratic Republic of the Congo, illustrate the need to respond to new demands for the social regulation of private sector development accompanying the rapid process of liberalization that has opened up mineral-rich African economies to investment. What needs to be underlined is the widespread nature of this process, which would have been difficult to imagine 10 or even five years ago (Frédéric, 2008). By mid-2008, at least eleven countries had decided to review their mining contracts.16 Also of note is the legitimacy which the process has gained with countries such as Belgium for example, endorsing the process of the revision of approximately 60 contracts in the Democratic Republic of the Congo.

A related but more encompassing issue concerns the revision of mining regimes and the debates which have arisen around the rethinking of the role of the mining sector in development strategies. Here, one could mention the experience of countries such as Liberia, which is attempting to ensure such a role for its sector. At a regional level, one could mention the work of the International Study Group (ISG) of the United Nations Economic Commission for Africa (UNECA) on the revision of mining regimes in Africa. Its report was scheduled for release in June 2009. It should be underlined that this process has worked under very tight constraints, both financial and political. At the centre of the work of the ISG has been the analysis of the potential transformative and developmental role of the sector, which, in turn, entails a central role for public policies, and for inter-sectoral and regional approaches such as ‘industrialising corridors’.17 These 16 These are: South Africa, Ghana, Guinea, Liberia, Madagascar, Niger, Nigeria, the Democratic Republic of the Congo, Sierra Leone, Tanzania and Zambia.

See in this respect the contribution of one of the members of the ISG, Dr. Paul Jourdan, the former CEO of South Africa’s Mintek: “FDI in Extractive Industries.: Resources-based Development?” presented to UNCTAD Expert Meeting, on FDI in Natural Resources, November 20-22, 2006 [PDF] http://www.unctad.org/sections/wcmu/docs/com2em20p 0018_en.pdf.

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issues raise the importance of certain preconditions and notably those concerning policy space and policy options.

In terms of the latter – policy space and the development of policy options – paradoxically, recognition of the need for supportive public policies which have largely been excluded because of the manner the role of the state in mining in Africa has been redefined was clearly present in a 1996 World Bank study on mining. The document underlined that a mining boom will not in itself lead to a process of economic diversification capable of generating long-term sustainable development in the absence of effective public policies which encourage such a process. In fact, in this study on Latin America and the Caribbean, the World Bank recognized that ‘exploration successes will not necessarily translate into mines, related industries, employment, and the increase in national wealth if the requisite conditions are not in place’ (World Bank, 1996, p. 3).

Such recognition and the policy reforms which it implied do not seem to have been present in the design of the development model underlining reforms in the mining sector in Africa over the last decade. In the context of discussions of which the Extractive Industry Review (EIR) recommendations of 2000 were a central element, reforms have subsequently been proposed by the multilateral financial organizations to improve the administrative capacity of states in the mining sector, as for example, through the World Bank recommendations with regard to reinforcing institutional capacity, adopting strategic plans reinforcing governance, transparency, infrastructure, telecommunications, energy, and roads, all of which are critically important. What is of note is the apparent absence of recognition of the need to reinforce the ‘developmental capacities’ of states. In this regard, there appears to be little attempt to respond to the observations made, for example, by the Commission for Africa, which recognized not only the legitimacy of state interventions, but also the need to reinforce the capacity of states in Africa so that they might assume a developmental role: ‘Weak institutional capacity prevents the state from undertaking its responsibilities effectively, whether planning and budgeting, managing development assistance, providing services or monitoring and evaluating progress’.18 18 Commission for Africa, “The Need for Peace and Security”, Our Common Interest, U.K, March 11, 2005, p.128.

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Whilst there is discussion as to how development can be achieved by promoting activities at the community level, which is without doubt important, much less emphasis – if any – appears to be given to the role which states need to assume in ensuring a positive impact on social and economic development at the national level. A broadening of policy space would suggest the need, however, of abandoning a sectoral approach to mining as has been the past focus, and considering a wider integrated approach which considers the transformative role which mining could play. This implies moving beyond seeing mining essentially as a source of revenue so that it serves as a catalyst to build intersectoral linkages, notably by integrating mining activities into industrial policies.

For this to happen, it is key that countries should not be obliged to forego policy space. For example, with a view to providing additional certainty to investors, many developing countries have gone beyond opening up to foreign investment in extractive industries by locking policy changes into fiscal stability clauses as well as by signing various international investment agreements (IIAs). The most important international investment agreements have been bilateral investment treaties (BITs) on the promotion and protection of foreign investment. In many mineral-rich countries, the number of bilateral investment treaties has increased rapidly during the past decade.19 In this regard, most countries today offer national treatment to domestic and foreign investors with regard to mining rights – but there are exceptions. For example, in Ghana, small-scale gold mining is reserved solely for Ghanaians.20 Clearly, there is a need to reset discussions concerning the developmental role of mining in a broader context which takes account of trade negotiations and other areas of policy decision which may condition or limit policy space.

United Nations Conference on Trade and Development (UNCTAD), World Investment Report, Geneva, 2007, p. 161.

19

20 It is interesting to note that in China, foreign parties are prohibited from exploration or securing mining rights to certain minerals, and are required to have a Chinese domestic partner in order to acquire exploration or securing mining rights to certain other minerals. Ibid.

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Policy Options

Several policy alternatives serve to illustrate what can be described as a process of the narrowing of policy space for mineral rich countries of Africa and the need for a broader approach to be adopted. Three areas will be used to illustrate this point: 1) choice and balance between growth sectors; 2) promoting intersectoral linkages; and 3) industrial diversification and infrastructure development. Each will be briefly examined in turn.

Choice and Balance Between Growth Sectors

The determination of the leading sector and the relations between sectors, as for example between agriculture and mining, may be conditioned by external factors and pressures. The recent privatization of the cotton sector of several West African states, a sector which has shown a capacity to contribute to food security and poverty reduction, signals on the one hand, the greater importance which other sectors – notably mining – are expected to assume as a driver of growth and development, with the challenges that this presents, and on the other, that structural conditionalities attached to concessional funding for poverty reduction strategies still heavily predetermine such policy options.21 External constraints appear to continue to the present to bear an influence in the determination of the policy options available.

Beyond the privatisation of the CMDT, the cotton parastatal by 2008, the other conditionalities which have been requested of Mali by the IMF as part of its Poverty Reduction and Growth Facility include the privatisation of the public telecommunications company, (SOTELMA) and of the public company which produces pharmaceutical products (UMPP).

As for the public water transport company and that which produces sugar, state participation is to be reduced to 20 per cent of total shares.

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IMF, Country Report of June 2004: Mali: Request for a Three Year Arrangement under the Poverty Reduction and Growth Facility (PRGF), No. 04/184, pp. 16-17.

This information is from: Campbell, Bonnie Vincent Nabe Coulibaly and Gisele Belem.

“Poverty Reduction in Africa: On Whose Development Agenda? Lessons from Cotton and Gold Production in Mali and Burkina Faso.” Cahier de recherche de la Chaire C-A Poissant, Montreal: Research paper no 2007-01, 2007 [PDF] http://www.ieim.uqam.ca/spip.php? page=article-poissant&id_article=3423.

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Promoting Intersectoral Linkages

With regard to promoting intersectoral linkages, requirements concerning a minimum local content with regard to sourcing are of central importance.

When formulating their policies and objectives related to promoting greater local value added, countries need to take into account commitments made in various international agreements. The Tanzanian experience provides an interesting illustration. Whilst the previous 1979 Mining Act required applicants for mining licenses to present a plan for local procurement of goods and services, such a stipulation was absent from the 1998 Mining Act. Moreover, the World Trade Organization’s Trade Policy Review of Tanzania 2000 states: ‘The authorities indicate that Tanzania does not have any local content requirements’.22 Given that provisions to build backward and forward linkages (such as value-added processing of minerals) to resource extraction within the economy would normally be considered important development objectives, it appears that the Tanzanian Government has been obliged to abandon these development objectives.

The 2007 World Investment Report discusses at some length the impact of trade and investment agreements with regard to extractive industries in its Chapter 6, ‘The Policy Challenge’. With regard to promoting forward linkages and downstream activities, in order to develop the ability to refine locally and add value to raw materials before they are exported, whilst the value of downstream processing may differ among minerals,23 the scope for downstream processing may sometimes be limited by the trade policies of other countries. Hence, in order to permit developing countries to add more value to their mineral deposits and to encourage industrialisation, importing countries may have to consider revising their trade policies.

Industrial Diversification and Infrastructure Development

These key issues raise the question of the development prospects of recent strategies in the extractive sector. If one takes the example of countries such 22

Ibid., p.14.

For example, a relatively small share of the total value chain is generated at the mining stage in the case of bauxite, whereas the converse relationship applies in the case of gold.

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as Mali and Burkina Faso,24 although gold is currently the only commodity being mined or planned to be mined on an industrial scale in both countries, obviously there is a potential contribution to development from all mining activities. Alternatives require that the entire mining sector be taken into consideration and that resource diversification towards other minerals than gold be promoted.

A focus almost exclusively on the exploration and mining of a single commodity, gold, may well contribute to the economy’s vulnerability because the price of gold fluctuates. And, in fact, evaluating other resources is part of the priorities of these countries. For instance, in Mali, part of the ad valorem tax (3 per cent) will be used to create a mining fund dedicated to evaluating other mineral resources.25 This investment in evaluation is all the more useful, because mines currently in operation were discovered in the 1970s in the context of bilateral and multilateral cooperation. With the State’s withdrawal and the drastic reduction of public spending following liberalization and adjustment programs, geological and mining research is poorly funded in Burkina as well as Mali.26 Both governments are attempting to finance modest projects aimed at drawing attention to useful substances and construction materials that are integral to the mining sector. Resources such as manganese, phosphates, zinc, granite and clay minerals are used in numerous areas: Construction, agriculture and ceramics. According to Burkinabe authorities, a good policy permitting the development of these substances would improve yields in agriculture, for example through the use of phosphates, which would contribute to reaching food self-sufficiency. Moreover, such a policy would encourage the consumption of local materials and help to reduce the cost of construction materials. 27 According to the former Malian Ministry for This section draws on the contribution of Gisèle Belem to “Poverty Reduction in Africa: On Whose Development Agenda? Lessons from Cotton and Gold Production in Mali and Burkina Faso.” Edited by Bonnie Campbell, Vincent Nabe Coulibaly and Gisele Belem, op.cit.

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25 26

Interview with the Minister of Mines, Mali Novethic, 2003.

Source : interviews

MMCE. Analyse sommaire de la situation du secteur minier burkinabé, Burkina Faso, January 2004. [Summary analysis of the Burkinese mining sector].

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Mines, Mali certainly has the potential for the development of a cement industry, but international operators are not interested. Both Mali and Burkina import their construction materials, even though their subsoils abound with them. With the financing of small-scale mines in the context of HIPC funds, Burkina Faso hopes to see its other useful mineral substances and quarries sector developed.

Clearly, alternative policies exist and could potentially be integrated into intersectoral transformative development strategies.

Concluding Remarks

The more than disappointing results of the last decades may be seen to have contributed to a very dynamic process of interrogation and demands for revision of policies which explain that we are presently in a very different context than that which existed 10 years ago. The increasing questioning of the inequitable terms on which activities have taken place and the resulting forms of resistance on the part of communities affected by mining, have contributed to what has been described by Szablowski (2007) as a process of ‘decertification’, which has called into question the legitimacy of the activities of many companies. In response to this process, numerous initiatives have been put forward in different arenas, at different levels and sectors whether by the private sector or by multilateral and bilateral institutions. At the multilateral level, the decision of the WBG to call in 2000 for a review with the setting up of the Extractive Industries Review signalled recognition of the mounting resistance and consequently, the controversial nature of WBG support to certain activities in this area. The Extractive Industries Transparency Initiative (EITI), launched in June 2003, can also be seen as a response to the serious criticism concerning the lack of transparency of the conditions under which activities in the sector were taking place. Both of these initiatives formulated recommendations which focus above all on the implementation of norms and standards through essentially technocratic legitimisation processes which fail to question the ‘development model’ they accompany. The shortcomings of such responses have been addressed above. On the basis of the empirical research carried out on a series of mineral-rich countries of Africa, given the heritage of the structural adjustment measures, it becomes clear that to limit reforms to

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simply implementing better norms and standards is clearly insufficient as a means to ensure that the extractive sector serves as a lever for development in the countries concerned. Among drawbacks that can be cited and which have been documented, is the manner in which recommendations have left aside central issues such as the reinforcing of the regulatory capacity of states, whilst attributing the overriding responsibility for developing the mining sector of the countries concerned to private sector actors.

At the bilateral level, initiatives point to the mounting awareness in the countries of origin of mining enterprises that there exist serious problems of the legitimacy of the operations of companies in this sector. Whilst illustrations could be given through the example of Belgium, or the Scandinavian countries, reference will be made here briefly to the Canadian experience.

Further to a national consultation process set up in Canada by the federal government in 2006 on the overseas activities of Canadian companies in the extractive sector, a unanimous report was submitted to the government the following year. Its recommendations called for the adoption of a Canadian set of corporate social responsibilities (CSR) standards for Canadian extractive-sector companies operating abroad. These recommendations need to be set in the context of the rapid global expansion of transnational mining investment listed on Canadian stock exchanges or companies having their head office in Canada. The call for the adoption of Canadian CSR guidelines was clearly a response to the need for better ‘certification’ and intended to ensure and reinforce the legitimacy of the operations of Canadian companies in the extractive sector. This most recent CSR initiative came at a time of mounting pressure resulting from an increasing number of cases of alleged violations of human rights and negative social and environmental impacts involving Canadian companies. Public awareness of these issues has been on the increase over the years and had already culminated in a 2005 unanimous government report from the all-party Standing Committee of Foreign Affairs. That report called for firm measures including the withdrawal of public support to a Canadian company accused of human rights violations. The multiple forms of public support given to Canadian mining companies operating abroad and the fact that investments of Canadian mining companies in Africa are expected to increase from around CAN$6 billion in 2005 to over $20 billion in 2010, underline the importance of the most recent initiative.

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However, despite an extensive process of national public consultation, half of the members of the government appointed group which drafted the report representing different sectors of the mining industry, including the directors of the two major mining associations of Canada, and that it was unanimously endorsed by all of its members, the present Canadian government has not responded to the report which was submitted to it in March 2007. This particular example is quite striking because although limited to the area of corporate responsibility, the proposed introduction of a set of Canadian standards may be seen as a first step towards clarifying the social and political responsibility of the various actors concerned, including that of the Canadian government. The refusal on the part of governments such as that of Canada, to clarify such issues of their accountability and responsibility illustrates the pertinence of the following observation of the Commission for Africa: ‘Responsibility for resolving conflict in Africa should lie primarily with Africans, but there is much more the developed world can do to strengthen conflict prevention. Investing in development is itself an investment in peace and security’.28 Moreover, it suggests the extent to which the reticence of the countries of origin of companies operating in Africa can be an obstacle to the furthering of not only the development objectives of mineral-rich countries, but also those concerning social and environmental issues and human rights.

The arguments presented here lead to the conclusion that it is essential to adopt an encompassing approach in order to take into account shared responsibilities for the past heritage which involves bilateral and multilateral actors in a most direct manner, as well as to be in a position to understand past patterns of reform and their impact on mining activities in Africa. Such an approach needs as well to be historical, country-specific and twopronged. On the one hand, there is a need to consider the design of past ‘development models’, the role they have assigned to public and private actors, and notably, the place they assigned or failed to assign to supportive 28

Commission for Africa, op.cit., Chap. 5, p. 174.

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development strategies aimed at meeting development objectives. On the other hand, and in very much interconnected manner, it is essential to examine the compatibility of the particular ‘governance agenda’ put forward in favour of the introduction of particular development models and to stabilize and legitimize particular patterns of resource distribution which accompany them. In this regard, as has been suggested, much more attention needs to be given to the issue of the legitimacy of the reform process itself. As Szablowski (2007, p. 299) underlines, the fact that de facto legal authority is being transferred from national to transnational regimes suggests the need for work to be done regarding the development of rigorous public legitimation strategies in the context of the emergence of transnational legal orders.

With regard to the thrust of the reform process itself, to the extent that the initiative for this process remains externally driven, the issue of the reinforcement, rather than the erosion of state legitimacy, remains unresolved.

The contradictions and problems of coherence which arise as a result of the attempt to reduce the analysis of social, political and economic processes which have been determined historically, to management issues which can be resolved through procedural solutions, presented as universality valid as the governance paradigm used by much of the donor community would appear to suggest or raise two fundamental issues: First, the impossibility of managing from the exterior, issues which are as complex as those concerning institutional and economic reforms; and second, the absence of political responsibility of multilateral and bilateral donors for the reforms and policies which they propose and at times impose.

Ultimately, responsibility to define, monitor and enforce norms and standards must rest with national governments and the communities concerned.

The past process of reform of the mining sector, including the redefinition of the role of the state through the introduction of increasingly standardized legal and fiscal frameworks with a view of creating a favourable environment for investment but at the expense of its capacity to respond to the challenges of development is neither viable nor in the interest of either local populations or their governments.

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Campbell, Bonnie Vincent Nabe Coulibaly and Gisele Belem. “Poverty Reduction in Africa: On Whose Development Agenda? Lessons from Cotton and Gold Production in Mali and Burkina Faso”. Cahier de recherche de la Chaire C-A Poissant, Montreal: Research paper no 2007-01, 2007 [PDF] http://www.ieim.uqam.ca/spip.php?page=article-poissant& id_article=3423.

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Campbell, Bonnie. “Good Governance, Security and Mining in Africa”.

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Campbell, Bonnie. “Walking a fine line. Liberalisation, Policy Space and the Challenges of Development: Lessons from the Guinean BauxiteAluminium Sector”. Presentation to the World Bank Group Extractive Industries Advisory Group, Oil, Gas, Mining and Chemicals Department, IFC, Washington: June 20, 2006. To be published in a forthcoming volume of the Political Economy of Mining in Africa.

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DNGM (National Directorate of Geology and Mines). Rapport de Suivi et de Contrôle des Sociétés d’exploitation Minière. Sadiola- Morila- Yatela, Bamako, August 2003. [Follow-up and monitoring report on mining companies. Sadiola-Morila-Yatela].

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Gosselin Claudie and Bani Touré. “Cohérence des politiques et interventions canadiennes dans la lutte contre la pauvreté: Le cas du Mali”. Ottawa : The North-South Institute, November 2000.

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Maury, Frédéric. “Quand les États renégocient”. Jeune Afrique, L’État en Afrique 2008. Numéro Hors Série, pp. 84-86.

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Mazalto, Marie. 2005. “La réforme des législations minières en Afrique et le rôle des institutions financières internationales: la République Démocratique du Congo”. In L’Afrique des Grands Lacs, Annuaire 20042005. S. Marysse and F. Reyntjens (eds), Paris: L’Harmattan, pp. 263-289.

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Sarrasin, Bruno. “Élaboration et mise en œuvre du Plan d’action environnemental à Madagascar (1987-2001) : construction et problèmes d’une politique publique”. Doctoral dissertation in Political Science, Université de Paris 1, 2002.

Szablowski, David. Transnational Law and Local Struggles. Mining, Communities and the World Bank. Hart Monographs in Transnational and International Law. Oxford/Portland: Hart Publishing, 2007, 336 pp

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Chapter 2

Strategies for Maximizing Mineral Revenue: The Zambian Experience1 Introduction

John Lungu and Sumbye Kapena Copperbelt University, Kitwe, Zambia

Mining has the potential to provide a host of economic benefits. Notably, it generates foreign exchange earnings and provides tax revenues capable of supporting government operations as well as facilitating social and economic infrastructure development. In many countries in sub-Saharan Africa, however, the sector has, at one time or another, been crippled by insufficient investment in both exploration as well as mine infrastructure development.

Upon independence, most governments seeking to stress their sovereignty over mineral resources imposed rules and regulations, which often precluded profitable investment by the private sector. In many cases, governments nationalized or took controlling interests in mining enterprises; as operators, rather than plan for long-term growth, activities were managed with the aim of maximizing revenues over the short term.

Mining revenues were largely diverted to support increased consumption. In some cases, rather than being reinvested in operations of other sectors of the economy, revenues were siphoned by leaders for personal gain.

Many of the large state-controlled enterprises found across sub-Saharan Africa today have experienced marked economic deterioration. They are subject to government intervention for purposes often unrelated to efficient performance and their operations tend to be less productive than those of private companies. Failure to change obsolete machinery has impeded 1

In this paper, ‘the state’ is used interchangeably with government.

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many operators from responding flexibly to changes in market conditions.

These dynamics, however, are changing. Under the guidance of World Bank officials, many countries in the region have reformed national legislation and policies, and privatized their mining industries. These changes have facilitated increased foreign direct investment.

This paper provides a historical overview of mineral revenue collection in Zambia, and the changing contexts under which it has taken place. The analysis covers three unique periods in the country’s history. The first, 1928-1967, was a period during which all of the country’s mining companies were privately owned. During this period, all mining companies operating in Zambia were legislated by the colonial statutes, which would continue to be the country’s principal legislative instruments until 1972, when the Mines and Minerals Act was enacted. Although the Zambian government secured a 51% shareholding in the copper mines in 1969, the statute to govern this came later, in 1972. The analysis of this period focuses primarily on the events that took place in Zambia after 1965, the year following the country’s independence from Great Britain, and when it began implementing its own budget and development plans. During this period, the Anglo-American corporation and the Roan Selection Trust flourished as the major owners of the country’s mining companies. The fiscal regime in place at the time is examined.

During the second period examined, 1968-2000, the country’s copper mines were state-owned and regulated under the Mines and Minerals Act of 1972. The act formalized the ownership decisions that were made in 1969 in the Matero reforms. The paper examines the efficacy of the country’s state-ownership strategy as an approach to maximizing mineral revenue.

Following this phase of unprecedented state ownership, a third period commenced, circa-2000, during which mines were privatized once again. This period is subsequently examined. During this period, the quantity of mineral revenues collected by the government has been determined by the ‘Development Agreements’ (DAs), or ‘contracts’ it forged with individual mining companies during the period 1997-2000. The provision to enter into Development Agreements has now been revoked by Zambia’s parliament.

The concluding section of the chapter reflects upon the lessons learned from the Zambian experience in the area of mineral revenue maximization strategy.

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Maximizing Mineral Revenue

Zambia is in dire need of industrialization. The structural transformation of the economy is an essential component of any long-term strategy to ensure the achievement of the Millennium Development Goals (MDGs). The key challenge, however, is the formulation and implementation of workable strategies based on the country’s unique strengths, rather than the emulation of strategies that may have been effective in other contexts. Since Zambia is well-endowed with natural resources, a resource-based development strategy should be rooted in the utilization of these assets. This has been the case for resource-based economies in the developed world, including Finland, Sweden, Germany (especially in the Ruhr region), and the United States of America over a century ago; and, to some extent, more recently in middleincome countries such as Malaysia, Brazil and South Africa.

Resource-based development strategies are not a new mantra. The vision that mineral resources can be used to catapult all of sub-Saharan Africa to modernization has been articulated in many of the region’s plans and development strategies at national and regional levels (e.g. Lagos Plan of Action, SADC Mineral Sector Programme, Mining Chapter of NEPAD, and, most recently, the Africa Mining Partnership). However, most of these initiatives are centred on developing ambitious and grandiose projects (Africa Vision 2050). Such strategies can only be effectively implemented if countries can maximize revenues from the resources available, which, in the case of Zambia, are minerals. This requires reviving the mining sector for it to continue as a source of government revenue.

The World Bank has identified an expanded large-scale mining economy as an effective means for resuscitating African economies (World Bank, 1992). A state’s strategy for maximising mineral revenue, therefore, is important, and not surprisingly, has become a topical issue for most African countries. For a state to maximise mineral revenue, however, the appropriate policy environment must be in place (World Bank 1992; African Development Bank 2008).

1928-1967

Zambia’s initial strategy for extracting mineral revenue was designed during the colonial period and implemented in 1928, the year commercial mining commenced in Zambia. The same strategy was employed until 1972.

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This section of the chapter, however, focuses primarily on the period 19651972, the first eight years of Zambia’s independence from Britain. As previously explained, the mining landscape at the time was dominated by private sector actors, led by the Anglo-American Corporation (AAC) and the Roan Selection Trust. From 1924 to the time of nationalization, the British South Africa (BSA) Company held all mineral rights and, therefore, received mineral royalties. The mining companies, however, paid corporation taxes to the colonial government. The colonial government also received windfall taxes depending on the price of copper on the London Metal Exchange. This regime of taxes continued after independence.

During the period 1965-1969, three key taxes were used in the mining sector: Royalties, corporate tax and windfall tax (Lungu, 2008). But the new government quickly recognized that it was not earning as much from the mining revenues, and in 1969, proceeded to implement major reforms in the mining sector. Things were set in motion by the Matero Economic Reforms of 1969 (Zambia, Republic of, 1969), which allowed the government to acquire 51 per cent of shareholding in the two major foreign-owned mining corporations; the Anglo-American Corporation and the Roan Selection Trust, leading to the establishment, in their place, Nchanga Consolidated Copper Mines (NCCM) and Roan Consolidated Mines (RCM). These were to be overseen by a new government owned-company called the Mining Development Corporation (MINDECO). A number of changes were also made to the mining tax regime. Perhaps most significantly, mineral rights hitherto held by the BSA Company reverted to the Zambian State: Mineral royalties would be paid to the latter, rather than the former. The post- independence mineral tax regime consisted of the following: A royalty tax pegged at 13.5 per cent based on the London Metal Exchange price sales; an export tax of 40 per cent charged when the copper price exceeded US$300 per long ton at the London Metal Exchange; and a corporate or income tax pegged at 45 per cent of the company profits. These taxes together formed an effective tax rate of up to 74.4 per cent (Lungu, 2008a).

The mineral revenue maximization strategy was successful during this period and the Zambian Government was able to collect sufficient revenues to develop social and economic infrastructure. As was the case during the colonial period, the Zambian economy at the time was one of the most prosperous in Africa, experiencing a low annual inflation of 7.7 per cent per year

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and possessing GDP per capita in the range of US$950 (Fundanga, 2005).

Copper mining revenues accounted for about 90 per cent of the country’s export earnings and 70 per cent of the government’s budgeted revenue (Fraser and Lungu, 2007). The State was also able to use some of the copper revenues to invest in and develop manufacturing. In fact, the industries that surfaced after the Rhodesian Unilateral Declaration of Independence (UDI) from Britain were financed using copper revenues. Development and services around mine sites was also fairly high. There were orderly housing compounds for employees, weekly food rations were supplied to employees, and hospitals and recreation clubs were found throughout the country.

1972-1995

In 1969, an unprecedented period of state control of the mining sector began when the government secured majority ownership in the Nchanga Consolidated Copper Mines – formerly Anglo-American Corporation – and the Roan Selection Trust. The nationalization of the copper mining sector, however, was officially completed in 1982. In this year, the two companies created as a result of the 1969 reforms (the Nchanga Consolidated Copper Mines and the Roan Copper Mines) were merged into one company: The Zambia Consolidated Copper Mines (ZCCM).

To better reflect the changed political environment and ownership patterns in the country, a new Mines and Minerals Act was passed in 1972, which effected major change to the national mineral tax regime. The royalty (13.5 per cent) and export tax (40 per cent) were replaced by a mineral tax of 51 per cent but corporate tax remained at 45 per cent. Further, in 1976, the mining companies were given the option to pay either 15 per cent paid-up capital of their companies or 50 per cent of their profit, whichever was less (Lungu, 2008a).

The performance of the mining sector during this period was poor.

Copper production declined precipitously during the period of state ownership, dropping from 700,000 metric tonnes in 1973 to 226,192 metric tonnes in 2000 (United States Department of State, 2008). The economy, in general, also performed poorly. Between the period 1976-1990 and 1991-1999, GDP per capita fell by 3.1 and 7.2 respectively. The mining sector’s contribution to GDP also fell from a high of 16.5 per cent in 1994 to 11.8 per cent

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in 1997, the year a second phase of mine privatization began (Zambia Consolidated Copper Mines Investment, 2000). While the decline in copper price that dogged this period is acknowledged by many researchers as an important contributing factor to the poor performance of the sector, it is also widely observed that mismanagement and low investment into the mines also contributed to its poor performance (United States Department of State, 2008; Fraser and Lungu, 2007). It is also estimated that by the late 1990s, ZCCM was incurring losses of as much as US$1,000,000 per day (Action for Southern Africa, 2007). Consequently, the government was forced to subsidize activities using money mostly borrowed from the donor community. At this time, Anglo-American corporation vacated Zambia, its managers determining that the country was unprofitable and had few prospects.

Chilipamushi (2001, in Mpuku and Muneku, 2001), quoting Cunningham (1981) cites a number of reasons why the reform and subsequent nationalization of Zambia’s copper mines led to a decline in production and revenue. First, the companies that had owned the mines before nationalization invested large sums of money in prospecting, which led to the opening of mines in quick succession, including Bwana Mkubwa in 1913, Luanshya in 1931, Rokana in 1932, Chingola in 1934, Chambeshi in 1956 and Konkola in 1957. By contrast, the Zambian government did not invest in prospecting, at least not to the same extent, after seizing control of the mines. Second, the previous owners of the mines had interests in other businesses related to mining and had invested in companies dealing in other types of minerals in other countries. This ensured a steady flow of income which was invested in copper mining operations. The previous owners also had connections with well-established foreign banks and other financial institutions such as Rothschild, J.P. Morgan and Barney, from which they could source funds when needed. The government, on the other hand, had no such arrangements. Finally, the government failed to invest proceeds from copper mining during periods of peak production, which could have helped offset the losses incurred during periods of stagnation (Osei-Hwedie, 2003). In short, although the government changed the tax regime in order to maximize mineral revenues, it failed to net significant benefit because of the collapse of world copper prices. Rather, the government ended up subsidizing the state-owned ZCCM in order to keep it functional.

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If anything, ZCCM has made important contributions to the community (Lungu, 2008b). Its managers subsidized housing, water and electricity.

They also implemented day-care programs for miners’ children, provided free education, as well as subsidized burial arrangements for miners and their (“nuclear”) family members. Apart from catering for miners and members of their family, ZCCM managers also provided a number of basic services to people residing in the mining townships, and helped to finance farms to supply food to the mines (Lungu and Mulenga, 2005).

2000-Present

It was against the background of the sector’s poor economic performance under state control that new mining policies were developed. At the turn of the century, the return to a privatized, more liberalized copper mining economy was initiated. The government faced the challenge of finding new mine owners willing to invest in and expand existing operations. Privatization of the mines was conducted during the period 1997-2000. As explained by Fraser and Lungu (2007), the new mine owners provided the sector with a new lease of life, extending, significantly, the lifespan of many projects forecasted in the late-1990s to close within 10 years.

To facilitate the privatization exercise, a new law, the Mines and Minerals Act of 1995, was passed. Enacted during the time of poor mining sector performance, the Act provided a fiscal regime that aimed at attracting and retaining new investors. Thus, the provisions of the Act were very favourable to investors. Its main provisions included (Ministry of Mines, 1997): • A royalty payment calculated at 2 per cent of the market value of minerals free on board (f.o.b) less the cost of smelting, refining and insurance, and handling and transport from the mining area to the point of export or delivery within Zambia. Royalty payment could be deferred if a cash operating margin of a holder of a large-scale mining licence fell below zero.

• A low corporate tax for exporters of copper and cobalt, which was pegged at 35 per cent of taxable income, while for the other minerals (non-traditional minerals) the tax was put at 15 per cent.

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• For capital expenditure, an allowance of 25 per cent on plant, machinery and commercial vehicles; 20 per cent on non-commercial vehicles; and 55 per cent on industrial buildings; among others.

• Relief from other surcharges including a 100 per cent exemption from customs, excise and value added tax (V.A.T.) for all machinery and equipment for use in exploration or mining activities.

• No restrictions on the amount of profits, dividends, or royalties that a company could externalize, although a withholding tax of 15 per cent would be levied.

The Act also made a provision for individual mining companies to negotiate DAs around the parameters stated in the Act; not surprisingly, different companies had different arrangements. The large and influential companies (e.g. the Konkola Copper Mines) paid only a 0.6 pe cent royalty. For these companies, corporate tax was 25 per cent, not 35 per cent, and they were allowed to carry forward losses for a period of between 15-20 years (from the maximum 10 years provided for in the Act). Exemption from paying customs duty on consumables and mineral royalty was raised up to a cap of US$21 million in the first year and US$19.6 million annually for the next four years thereafter. Copper and cobalt participation fees were made tax deductible, and there was no payment of excise duty on electricity consumed. Importation of capital equipment and utility (commercial) vehicles would attract no duty. It was agreed at the time that the DAs in place were not to be revised until the end of the 15-20 year period (the stability period) except if one party to the agreements did not honour the deal, in which case, the services of an international arbitrator would be solicited (Lungu, 2008a).

However, though the DAs were signed by government officials (ministers), they were not discussed in parliament and passed as legally-binding agreements.

International donor agencies, notably the World Bank and the International Monetary Fund (IMF), played an influential role in these negotiations. Politicians in the ruling party and senior administrators in ZCCM, some of whom have since been accused of exploiting these agreements, were also instrumental in ensuring that the agreements were signed. There was no public discussion or consultation with citizens; either directly or through their MPs. In this respect, the DAs are confirmation that the State

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can be held captive by powerful groups in society and secondly, that external influences can exert pressure on the decision-making process within a State (Lungu, 2008a). It was not until six years after the signing of the last DA that the people of Zambia began to gain some insight into the contents of these agreements. Not surprisingly, there has been resistance in various sections of Zambian society to the implementation of new DAs and over existing agreements. This has culminated in the government revising the agreements unilaterally. Different groups, including those that had urged the government to sign the DAs in the first place, emerged to pressurise the government to renegotiate them in order to derive greater benefit from the unprecedented rise in value of mineral commodities. The pressurise groups included local NGOs and the civil society in general; international NGOs, notably the Scottish Catholic International Aid Fund (SCIAF), Christian Aid and Action for Southern Africa (ACTSA), and politicians in opposition parties. A number of reasons were cited as justification for revising the DAs. Officers at Christian Aid, SCIAF and ACTSA, for instance, argued that low royalty rate on copper (0.6 per cent) that Zambia was charging was nowhere near the average (5-10) for developing countries, and that, therefore, the amount the government was receiving was not commensurate with the amount of profits that the mining companies were making. More precisely, at 0.6 per cent royalty, KCM in 2006/07 paid only $6.1 million while the company extracted copper ore worth $1 billion and netted a profit of $310 million (Action for Southern Africa, 2007). Furthermore, when considered in the context of other sectors of the economy, mining’s contribution did not reflect its status as the most important source of revenue.

With significant support for change from various groups, the government decided to cancel all DAs, replacing them with a single tax regime. The amendments were made to the Mines and Mineral Act of 1995 and effected unilaterally. They came into force in April 2008. The amendments made included the following (Lungu, 2008a, Cronje (2008): increasing the royalty rate to 3 per cent; increasing corporate tax to 30 per cent; the government introducing a 15 per cent withholding tax on interest, royalties, management fees and payments to affiliates or sub-contractors in the mining sector; and the introduction of a windfall tax, to be triggered at different price levels for base metals. For copper, the rate is 25 per cent when the copper price is between US$2.50 and US$3.00 per pound; 50 per cent when price is

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between US$3.00 and US$3.50; and 75 per cent when price exceeds US$3.50 per pound. In addition, the government introduced a variable profit tax of up to 15 per cent, levied on taxable income which is above 8 per cent of gross income, and allowance on capital goods was reduced from 100 per cent to 25 per cent.

Not surprisingly, the mining companies resisted the new policy. Among the main arguments put forward were that there was need for the government to continue taking into account differences among the mines ignored in the new tax regime. In the final analysis, these differences translated into differences in costs. Important differences cited were development projects currently taking place (Konkola in Chingola town is deepening the underground and is also constructing a new acid plant at the same time it is expanding the open shaft mine to prolong its life, KCM in Kitwe city is expanding the Nkana Smelter, and Equinox is developing Lumwana Mine as a Greenfield into the world’s largest low-grade copper mine).

A second factor cited was the age of the mines – that these policy changes would affect the profitability of mines of different ages differently.

Older mines, it was explained, were more costly to operate and maintain.

Third, mining company officials argued that the new tax regime would make mining unsustainable because the tax rates were too high. The mining companies pointed out that the original DAs, being documents signed by authorized government officials on behalf of the government, were legallybinding, and that changing them before the agreed time was a breach of contract.

Having forwarded their arguments, the mining companies, through the Chamber of Mines, made the following counter-proposals, inter alia, to the Parliamentary Committee on Estimates and Expenditure: That they accepted the 3 per cent royalty but that this needed to be a ‘graduated’ rate of 1-3 per cent; that the windfall tax rate needed to be halved to 12.5 per cent, from 25 per cent; that they would only accept either the windfall tax or the variable profit tax and not both; and that capital allowance needed to remain at 100 per cent. An important group that was in support of the mining companies’ stance of rejecting the new tax regime was the main opposition party, the Patriotic Front. It was particularly not happy with the introduction of windfall and variable profit taxes and any cumbersome implementation of the mineral royalty. The government’s refusal to renegotiate DAs and move

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to amend the Mines and Minerals Act 1995 and other pieces of legislation have led some mining companies to threaten legal action. Some mining companies have also refused to pay the revised taxes, especially the windfall tax. By September 2008, only two mining companies had paid for the quarter ending 30th June 2008. The government’s reaction (through the Secretary to the Treasury) to this non-payment of taxes was to threaten the companies that had not paid and treat them as defaulters (Times of Zambia, 10th September 2008).

A number of institutions/organisations have expressed the need to deal with this impasse. Among the groups calling for renegotiation are the Economics Association of Zambia (EAZ) and several NGOs. While the latter had strongly called for the revision of the original development agreements, they did not expect the government to take a unilateral decision on the revision (Lungu 2008). The Parliamentary Committee on Estimates and Expenditure has some of its members from the opposition parties, especially the Patriotic Front (PF), who have shown sympathy to the mining companies regarding some aspects of the new tax regime. In spite of the impasse, the new strategy for maximizing mineral revenue – that is, the decision made to privatize and liberalize the sector – has generally been judged to be successful. A considerable amount of new money has since been injected into the sector to refurbish operations and prolong their lives.

Furthermore, production levels have been steadily increasing since the privatization of the mines, which again was barely 250,000 tonnes at the start of privatization but has since risen to well over 500,000 tonnes. Profits have been rising since the time the mines were privatized, in turn netting the government more revenue. The mining sector’s contribution to the treasury has been steadily increasing since 2001 after falling close to zero in 2000 (Fraser and Lungu, 2007). However, had Zambia put in place a flexible but progressive tax regime, the benefits from the commodity price boom could have been greater.

Concluding Remarks

This paper has examined the efforts made by the Zambian Government to maximize economic benefit from large-scale – principally, copper – mining projects in three periods of its history, each with different policy environments. The first period reviewed, 1928-1967, mining companies in Zambia

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were privately owned and continued to be legislated by colonial statutes until 1972 when the Mines and Minerals Act was passed. The second period reviewed, 1968-2000, was a time when the government controlled the mines. During the final period examined, 2000 to the present, the mines were re-privatized, and legislated under a revised mining law, the Mines and Minerals Act of 1995. In the period shortly after independence in 1964, the mining landscape continued to be dominated by companies such as the Anglo-American Corporation and the Roan Selection Trust. These companies were subjected to a tax regime inherited from the colonial period in which the companies paid royalties to the BSA Company. With the state nationalizing land rights, the companies began paying royalties to the Government of Zambia, enabling it to finance social and economic infrastructure.

During the second period, royalties ceased to exist; rather, mining companies paid a mineral tax of 51 per cent. Failure to develop the copper mining sector during this period led the government to push a policy of re-privatization in the late-1990s. Without much room for negotiation, the government negotiated DAs, or contracts, with individual mining companies between 1997 and 2000. The provision to enter into DAs, however, was recently revoked by Zambia’s parliament, in large part because of the inequitable nature of these agreements. With the sector somewhat revived, the Zambian Government hopes to maximize mineral revenue collection by increasing the royalty payment from 0.6 to 3 per cent, windfall and variable taxes and also corporation tax. Companies have resisted these changes, and in the upcoming months, negotiations will no doubt continue to take place to resolve what has become a serious impasse.

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References

Action for Southern Africa (2007). Undermining Development? Copper Mining in Zambia. London; ACTSAF, Christian Aid and SCIAF African Development Bank Group (AfDB) (2008). Briefing Note on Revenue and Tax Levels: Mineral Taxation in Africa. Tunis; African Development Bank.

Auty, Richard (2008). Political Economy of African Mineral Revenue Deployment: Angola, Botswana, Nigeria and Zambia. www.realinstitutoelc ano.org (accessed 4th October 2008).

Chilipamushi, Davidson (2001). “The Mining Industry in Zambia; Retrospect and Prospects.” In Mpuku, H.C. and A. Muneku (eds) (2001).

Impact of Structural Adjustment Programmes On the Zambian Economy.

Pp.153-164. Ndola, Zambia: Mission Press.

Cronje, Freek, Charity Chenga and Johann van Wyk (2008). SADC Research Report: Corporate Social Responsibility in Zambian Mining Industry. Marshalltown, South Africa; Netherlands Institute for Southern Africa (NIZA).

Cunningham, S. (1981). The Copper Industry in Zambia. New York; Praeger Publication.

Economic Commission for Africa (ECA) and African Union ( 2008). Africa Mining Vision 2050. ECA. Addis Ababa, October 2008.

Fraser, Alastair and John Lungu (2007). For Whom the Windfalls: Winners and losers in the privatisation of Zambia’s copper mines. Lusaka; Civil Society Trade Network of Zambia and Catholic Centre for Justice, Development and Peace.

Fundaga, Caleb (2005). “Zambia’s Economic Outlook: What Have We Learnt in the Last 40 Years and Where Do We Go From Here?” Paper presented by Dr Caleb Fundanga, Governor of the Bank of Zambia, at the CIMA Zambia annual business discussion.

Lungu, John (2008a). The Politics of Reforming Zambia’s Mining Tax Regime. A Paper presented at the Mine Watch Zambia Conference: Politics, Economy, Society, Ecology and Investment in Zambia, Oxford University, 19th-20th September, 2008.

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Lungu, John (2008b). “Socio-economic Change and Natural Resource Exploitation: A Case Study of the Zambian Copper Mining Iindustry”, Development Southern Africa. 25:5, 543-560.

Lungu, J. and Mulenga C. (2005). Corporate Social Responsibility Practices in the Extractive Industry in Zambia. Ndola, Zambia; Mission Press.

Ministry of Mines (1997). Zambia: Investment Opportunities in the Mining Industry. Lusaka, Zambia. Government of the Republic of Zambia.

Mpuku, H.C. and A. Muneku (eds) (2001). Impact of Structural Adjustment Programmes On the Zambian Economy. Pp.153-164. Ndola, Zambia: Mission Press.

Osei-Hwedie, Bertha (2003). “Development Policy and Economic Change in Zambia: A Re-Assessment.” DPMN Bulletin: Vol. 10 No.2, April 2003.

Times of Zambia, 10th September 2008. Lusaka.

United States Department of State (2008). Zambia. Bureau of African Affairs. http//www.state.gov (Accessed, 6th September, 2008).

World Bank (1992). Strategy for African Mining. World Bank Technical Paper Number 181. Washington, D.C.; World Bank.

Zambia Consolidated Copper Mines Investment (ZCCM-IH) (2000). Report No. PID9676. Lusaka.

Zambia, Republic of (1969). Matero Reforms. Lusaka; Government Printers.

Zambia, Republic of (1995). Mines and Minerals Act 1995. Lusaka; Government of the Republic of Zambia.

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Chapter 3

Mining Boom and Enclave Economy: Development Impact and Challenges in Mining Areas in Africa

Introduction

Abdulai Darimani Third World Network-Africa environment@twnafrica.org

For centuries, rural communities have been founded or shaped based upon their proximity and access to certain natural resources such as water bodies, forest, mountains and fertile lands. In Africa, the rural population is relatively large, most of which is marginalised with severe constraints to access the minimum levels of decent nationally recognized facilities and services. In their marginalized status, these natural resources have been central to their livelihood, social, political and economic organization. Land is particularly critical to the survival as well as social and political relations in rural communities. For most rural communities, land and water bodies are not only factors of production but are also intangibly qualitative objects which define a constellation of social, religious and political relations. Mining is one of the natural resource development activities that take place mostly in rural communities. Most major mining investment decisions involve rural communities.

This paper discusses community demands for improved revenue distribution and management. The central argument of the paper is that community demands for improved revenue distribution and management is both a response and an illustration of policy failure to translate mineral wealth into integrated rural and national development. The paper is divided into four parts. The first part presents a balance sheet of mining in terms of revenue distribution between the three principal actors: Mining communities, the

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state, and mining companies. The second part examines in brief, the model of mining regime in Africa, explaining how liberalization of the mining sector has triggered the proliferation of transnational mining companies on the continent. The third part examines the forms and character of community demands as well as responses from the state and mining companies. The last part draws some conclusions and makes some recommendations on ways of improving revenue distribution and management.

The Balance Sheet for Mining

In discussing the balance sheet for mining for Africa, one needs to locate this in the context of levels of mineral resource income, the formula for distributing benefits and whether it accounts for important opportunity losses, and the constraining effects on citizens' coping and livelihood strategies.

Africa has substantial stocks of a variety of mineral resources. These resources represent potential catalysts for social and economic development in host countries and local communities. Nearly every country in Africa has some type of mineral commodities in commercial quantities.

Africa and its people, particularly communities affected by mining investment, should necessarily be the main beneficiaries of the abundant and proven mineral resources through direct revenue accruement from equity participation, royalty payments and taxes, as well as indirectly, through employment, skills, technology transfer, growth of subsidiary industries and services; downstream processing; and development of social and economic infrastructure such as education and health. The ECA (2004) points out that a successful minerals industry would spawn the establishment of numerous support industries, increase the levels of education and skills of citizens, facilitate the development of social infrastructure, and generate a strong flow of foreign exchange earnings capable of fuelling the growth of the competitive industries of the future.

Despite this potential, both the statistical and anecdotal evidence available suggests that significant mining investment has a limited transformative effect on communities in mining areas and the national economies of host countries as a whole. Such investment rather tends to expropriate the rural economy and disrupt existing social and political structures and relations. With particular reference to revenue, what the state collects is relatively marginal and there are no clearly-defined guidelines for determining

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how mineral revenue trickles down and benefits local communities directly and indirectly. A parliamentary report of Tanzania (2008) points out that in Tanzania, there are no proper procedures on separating revenue collected from minerals. Due to lack of procedure, there are numerous doubts and tension over proper usage of this revenue for the benefit of the government and citizens.

The main sources of mineral revenue to host countries are state equity participation in each mine, royalties as well as traditional taxes such as corporate profit tax, reconstruction or development levies, personal income tax (PAYE-pay as you earn), fees and rents applicable to all other businesses. In the first instance, the level of revenue accruing to host countries for redistribution is relatively small. Royalties constitute one of the most effective ways of splitting the economic rent accruing from mining projects between the investors and the host state. Royalty taxes are generally the largest and constitute a more stable source of revenue to host states than taxes on profits, which companies rarely pay due to excessive taxable allowances granted to them by most mineral codes. In addition, it is predictable since production tonnages and mineral sales are easy to monitor. This notwithstanding, the level and range of royalties imposed on mining companies operating in Africa have been terribly low and relate more to protecting the shortterm commercial interests of investors than the long-term economic interest of host countries. Also, the levels of most of the other taxes are either kept very low or out of national legislation. The situation is compounded by practices of transfer pricing and tax avoidance. Table 2 shows the direct contribution of mining to the economy of five (5) selected African countries.

Where much larger revenue is expected, the tax levels are either low or completely not provided for under the law. As can be seen in Table 2, royalty is the largest and most predictable source of mineral revenue, yet its level is terribly low. In addition, mining companies are allowed to carry forward losses to the following year which further lowers the amount of royalty due for host countries. Capital gain tax is yet another important source of government revenue. This is because the nature of mining is such that the frequency of assets disposal is high, most of which appreciates in value over time. An imposition of capital gain tax would allow host governments to share profits accruing from the disposal of assets. For now, this tax does not appear to exist in the mining regulations of most countries in Africa. Again

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Table 2: Levels of direct contribution of mining to the economy of host countries 2000 to 2006

Source: Tax study and field data, 2008

the total economic impact of mining in terms of employment generation is quite marginal in each of the five countries. This is due to the fact that the current technology of mining is capital-intensive. The extraction of minerals requires large, durable, location-specific investments (often referred to as site or location specificity). Such investments in facilities and equipment tend to be unique to a particular mine. For the same reasons, Sachs and Warner (1995) observe that mineral resource development brings about few positive externalities to forward and backward industries.

The formula for distributing the marginal revenue governments derive from mining does not include local communities as part beneficiaries. In the case of Ghana, for example, 80 per cent of the royalty collected goes to government consolidated fund and 10 per cent goes into the Mineral Development Fund, which is not backed by any legislation. The absence of legislation permits the minister and or the political class unfettered discretionary powers in the distribution and management of this fund.

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The remaining 10 per cent is distributed among the respective district assemblies, traditional council, the stool, and the Administrator of Stool Lands. An assumption is made that whatever goes to the district assembly and the Stool would necessarily translate into development in the affected communities. Unfortunately, the realities on the ground rarely confirm this assumption. The Aggregator Report of Extractive Industries Transparency Initiative (EITI) indicates that a large chunk of the royalty received by district assemblies is spent on recurrent expenditure. Some governments are now introducing community development funds as stop-gap measures to address the policy gap. This is an area which requires further exploration to understand the ramifications and unravel any complexities of such funds in order to offer appropriate policy direction.

The precarious state of many local communities is compounded by a host of other adverse impacts, including human rights abuses. As Sinding and Peck (2001) note, the business of finding, extracting and processing mineral resources is widely regarded as one of the most environmentally and socially disruptive activities undertaken by industry. This dim view of the industry is clearly demonstrated by specific events and images surrounding a number of mines across Africa. Key examples include the sudden closure of Bonte Gold Mine in Ghana in 2004, which left vast acres of unreclaimed lands; the alleged Buluyanhulu saga in Tanzania in which hundreds of villagers were reported to have been buried alive in order to secure space for large-scale mining; an incident in Zambia in 2005, where fifty mineworkers perished through chemical explosion; and several alleged reported human rights violations which are attested to by reputable institutions, including the United Nations Commission on Human Rights and the Ghana Commission of Human Rights and Administrative Justice (CHRAJ) (see CHRAJ report 2008).

The Model of the Mining Regime in Africa

From the colonial period through independence to structural adjustment, the chosen model for mineral resource extraction in Africa has prioritized the interest of the transnational corporation, their local agents and political elites above integrated national development, the environment and community interest. While post-independent attempts at nationalization and

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increased state participation may have influenced the ownership structure of the mining industry in Africa, not much has been achieved in translating this mineral wealth into building the productive capacity of local communities through integrated national development. In countries such as South Africa, where there has been some manifestation of the impact of mining in national economic transformation, it has occurred as an enclave with great ecological degradation and community exploitation by the few who held capital and political power. Without going into a critique of the concept of the South African Black Economic Empowerment affecting the mining sector, its introduction is an affirmation of the poor balance sheet for a greater majority of the population. Similarly, the emerging concept of community development funds for local communities in mining areas across Africa is also an admission of the disproportionate distribution and poor management of mineral wealth.

The current process of liberalization represents a high point of continuity of the preponderance of corporate interest on Africa's mineral resources at the expense of local communities. Since the late 1980s through to the mid-1990s, Africa has been among the major destinations of global mining expansion. UNCTAD (2005) reports that FDI as a share of gross capital formation has actually been rising in Africa, particularly since the mid-1990s; since the turn of the century, it has become a more prominent source of capital formation than in any developing region other than Central Asia. For instance, average annual FDI flows to Africa doubled during the 1980s to US$2.2 billion compared to the 1970s, but increased significantly during the 1980s to US$6.2 billion and US$13.8 billion, respectively, during the 1990s and the period 2000-2003. On a per capita basis, this translates into a more than fourfold increase compared to the 1980s. A large chunk of these flows went into investment in the extractive sector in Africa. Again, UNCTAD (2005) reports that the 24 countries in Africa classified by the World Bank as oil and mineral-dependent have on average accounted for close to threequarters of annual FDI flows over the past two decades. Indeed, with the discovery of new oil fields in Chad and Equatorial Guinea, all top ten recipients of FDI in Africa in 2003 have large mineral and petroleum reserves.

The development of the mineral sector along the logic of free trade and investment has been the transmission channel of transnational capital to developing countries and their rural communities. The logic of liberalization

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has put many African states and governments almost in a box that prevents them from being able to optimize benefits from their mineral resources.

Flowing from this logic, most African governments could not conceive of the development of their mineral resource sector without a significant role of foreign direct investment. The centrality of foreign direct investment in public policy choice and as a key strategy for mining ignores the multiple and competing interests, and the potential for forward and backward linkages to the rural economy and the national economy as a whole. Conceived as the main strategy for the development of the mining sector, the terms and conditions under which FDI operates tend to legalize capital flight from rural communities and the national economy. The main features of this flight include extensive incentive schemes, rules for corporate protection, and the exercise of discretionary powers permitted by state mining laws.

These features tend to limit the catalytic role of mining, making the sector an enclave economy. Both the conception of the strategy and its 'operationalization' make mining in Africa an enclave economic activity without linkages to rural development priorities and national economic transformation. Indeed, over the past 20 years, the mining sector operates in a de facto exclusion from any comprehensive national development strategy.

In operationalizing this economic logic, mining companies line up with the machinery of the state to subject local communities to economic exploitation and political domination. Every large-scale mine comes alongside a strong presence of the state and mining companies who see the investment as a faultless project which must proceed without dissent or hesitation.

Yet, as Mate (2002) indicates, an increase in mining operations and the prevalence of surface mining has led to an increased loss of land; a critical resource for many rural communities. Consistent with their economic logic, the state believes that the only rational investment in local communities is the one conceived by the mining industry. This helps to explain why the state machinery could be deployed to supervise the demolition of houses and homes, the displacement of whole villages from their farms and lands, destruction of water resources, and payment of pittance as compensation. To rationalize their behaviour and domination, corporate social responsibility projects are designed to demystify the real character of the industry and make it unclear exactly what their practice means for the poor conditions of rural communities. Indeed, one of the disorganizing influences of large-

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scale mining investment in rural communities is the appearance of the state power coupled with its drastic redesign of the livelihood trajectory of the people, and the relations they forge with a variety of natural resources that give them identity and self-fulfilling.

Community Demands

The poor balance sheet, coupled with the slow, cosmetic and many times repressive response by the state and mining companies to the concerns and interest of communities have led to a questioning of the use of mineral resource revenue and demands. These demands are made for a variety of legitimate reasons, including improved distribution and management of the mineral resource revenue, the protection of the environment and livelihood sources, a voice in public policy space, respect for their human rights, and ownership and access to the minimum requirement of socially-recognized decent levels of human existence. For most communities affected by mining, every day opens up a spectrum of struggles, including the challenges with obtaining and retaining land and other livelihood resources, and also the struggle to liberate themselves from the numerous restrictions and limitations imposed by state policy and corporate practice. Their demands range from belligerent acts as noticeable as in the Niger Delta region of Nigeria through protest, self-mobilising and organising, coalition and alliance building, enlisting the support of experts, and intervening in policy and political processes relevant to their agenda.

The National Coalition on Mining (NCOM) represents a particular form in which community demands find expression in the mining sector. It is a grouping of NGOs, communities affected by mining and individuals engaged in mining/extractive sector advocacy for environmental sustainability, community rights, and integrated national development. In 2001, there was a cyanide spill at Abekoase near Tarkwa in the Wassa West District of Western Region by Gold Fields Ghana Limited. TWN-Africa spearheaded the establishment of NCOM as a particular form of collective response to the specific problems arising from the cyanide spillage and generally to the lack of developmental impacts of mining, including the marginal or lack of benefits to local communities. Since its formation, NCOM has offered a framework for collaboration to strengthen collective actions that

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advance community interest, environmental sustainability and integrated national development in relation to the extractive industries sector, in particular mining. In the specific area of work on communities affected by mining, the approach continues to facilitate and inspire the self-expression and self-organization of communities, and their wider linkages with organizations in and out of the country.

Conclusion

While mineral resources have been integral to the social and economic development prospects of mineral-endowed countries and local communities in Africa, domestic measures have not been adequate to optimize the benefits or translate marginal benefits into building the productive capacities of local communities in mining areas. This has occurred largely as a result of the processes of globalization which has emerged as policy, law and practice for all countries. Local communities which suffer the direct impact of policy inadequacy and poor practice have employed a variety of demands to address their specific concerns.

Yet, the very policies which angle them out from the equation are set to continue as the EU negotiates the Economic Partnership Agreement with Africa and Caribbean Countries, as the new emerging powers of Asia (China and India turn to Africa for their mineral resource demands; as the US works to forge partnerships with oil-producing countries in Africa; and as northern governments forge bilateral investment agreements which set low standards for Africa's mining sector.

Looking into the future role of mining in Africa, the paper makes the following recommendations: • Development of an integrated national and regional strategy for mining.

This strategy must have rural development strategy as key element since most mines are rural location specific. • Re-definition of the concept of investment, which narrowly focuses on investment only when it is big and essentially foreign. The reframed concept of investment is a new one by peasant farmers; women's productive economic activities and a holistic view of a community

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beyond an aggregation of human beings should be key elements of this conception.

• The scope of policy-making is such that community demands need to expand beyond location-specific actions.

With specific reference to improved revenue distribution and management the paper makes the following recommendations: • Improve the marginal gains by considering an upward review of the levels of some of the taxes, particularly royalty, and also a reintroduction of some of the taxes such as capital gain tax and additional profit/ windfall tax, where applicable.

• Consider the creation of a permanent mineral resource investment fund backed by national law and managed by a clearly defined institution. A review of experiences elsewhere would be valuable as a precursor. Some of the experiences worth reviewing include:

- Alaska Permanent Fund - constitutionally enshrined, dividend to all, highly successful, keep management out of the hands of spendthrift politicians, preserve state's mineral wealth for indefinite future, returns distributed among entire Alaskan population.

- Alberta Heritage Fund - managed by politicians as a budget-balancing tool, low return investment decision, cross-subsidization of poorer provinces, no dividend program.

- Norwegian Petroleum Fund - managed in European parliamentary tradition, independent board of investment managers, Central Bankmanaged, annual deposits & withdrawals at the discretion of Parliamentary majority, investment portfolio spreads risk.

• There is also a need to formulate fiscal devolution principles, which transfer and or reverse revenue sharing arrangements to the local centres.

However, such principles must be consistent with the larger integrated national development agenda.

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• The principles should also come with clear definition of guidelines for the distribution and utilization of the mineral wealth.

• It might be worthy to consider the introduction of special productionbased fees, taxes based on source principle. The stumpage fees concept in the timber sector could explore for possible applicability in the mining sector.

• Finally, consider diversification of certain minerals which allows community collective investment.

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References

Economic Commission for Africa-ECA (2004), Minerals Cluster Policy Study in Africa Pilot Studies of South Africa and Mozambique, ECA, Addis Ababa Ferguson, James (2006), Global Shadows: Africa in the Neoliberal World Order Durham, NC: Duke University Press

Mate, Kwabena (2002), Capacity Building and Policy Networking for Sustainable Mineral-Based Development report prepared for UNCTAD under Project M of the UN Development Account McAdam, Doug, McCarthy, D.John, and Zald, N. Mayor (1996), Comparative Perspectives on Social Movement

Sachs, Jeffrey D. and Warner, Andrew M. (1995), Natural Resource Abundance and Economic Growth, National Bureau of Economic Research, Inc in its series NBER Working Papers No. 5398 The United Republic of Tanzania (2008), Report of the Presidential Committee to Advise the Government on Oversight of the Mining Sector, Vol. 2 UNCTAD (2005), Economic Development in Africa: Rethinking the Role of Foreign Direct Investment, United Nations, New York and Geneva

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Chapter 4

Hiding Conflict Over Industry Returns: A Stakeholder Analysis of the Extractive Industries Transparency Initiative (EITI) Sarah Bracking Institute for Development Policy and Management (IDPM), University of Manchester, UK

Introduction

“3.5 billion people live in countries rich in oil, gas and minerals. With good governance the exploitation of these resources can generate large revenues to foster growth and reduce poverty. However when governance is weak, it may result in poverty, corruption, and conflict. The Extractive Industries Transparency Initiative (EITI) aims to strengthen governance by improving transparency and accountability in the extractives sector. The EITI sets a global standard for companies to publish what they pay and for governments to disclose what they receive.” (EITI, 2008) “The EITI, in a nutshell, is a globally developed standard that promotes revenue transparency at the local level” (EITI, 2008).

This paper will explore the political context and effects of the Extractive Industries Transparency Initiative (EITI), an intervention which aims to bring together in a common purpose, governments, companies, civil society groups, investors and international organizations to ostensibly improve governance in resource-rich countries in order to defeat the 'resource curse' and facilitate economic growth and poverty reduction. There are currently

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23 candidate countries1. There are currently no fully compliant countries that is, candidate countries - which have successfully completed EITI validation, a process managed in-country by the country multi-stakeholder group to assess compliance with the standard. The validation process, which must occur before a country has completed two years as a 'candidate country', is further overseen by the EITI Board through the EITI Secretariat, with the board also reviewing all Validation Reports.

We are told that the 'primary beneficiaries' are the governments and citizens of resource-rich countries. The principal mechanism which serves to bring these benefits is the transparent reporting of what companies pay and what governments receive in terms of mineral-related profits and rents.

This, we are assured, will propel us some way along the road to greater accountability and better governance as citizens now have the 'facts' with which to hold decision makers accountable for their use of revenues.

According to the EITI: 'Civil society can benefit from an increased amount of information in the public domain about those revenues that governments manage on behalf of citizens, thereby increasing accountability and improving transparency'.

[EITI, Fact Sheet, 2005] As a representative of the in-country Multi-Stakeholder Group, some augmented voice for 'civil society' is ensured. Meanwhile, the enhanced power attributed to greater knowledge is assumed to further the interest of the weaker parties, although how this actually happens in practice is not clear.

The paper explores the initiative using a stakeholder analysis of the various interests that it claims to further, and shows how these are chronically imbalanced. Critical conflicts of interest and unequal power between the various parties are obscured by an underlying reliance on liberal consensus theory, which suggests that all parties can be winners.

1Azerbaijan, Cameroon, Côte d´Ivoire, Democratic Republic of Congo, Equatorial Guinea, Gabon, Ghana, Guinea, Kazakhstan, Kyrgyzstan, Liberia, Madagascar, Mali, Mauritania, Mongolia, Niger, Nigeria, Peru, Republic of the Congo, São Tomé e Príncipe, Sierra Leone, Timor-Leste, Yemen.

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Stakeholder Analysis of EITI

Overall, it is important not to evaluate the EITI for what it is not. It is not a Fair Reward mechanism, or Fair Trade standard which has at its centre any discussion over the distribution of rents. It does indicate that consideration will occur of whether the distribution of benefits is equitable and necessary adjustments will be actions to ensure that the country's poor and natural owners of subsoil resources are properly compensated for their extraction.

That poverty reduction might occur, or sustainable development is an addon which is not built into the process of EITI. This is simply a process of high-level meetings, the appointment of an administration and the publication of some accounts. And as the quotes above indicate, it is a top-down process of applying a 'global' standard in a 'local context'. It is not, also, a response to the World Bank's Extractive Industries Review, which just preceded it, but arguably a distraction from it.

In other words, a whole load of development objectives - anti-corruption, poverty reduction, sustainable development, economic growth, better governance - are said to be attributable to the simple act of transparent accounting. As Table 1 illustrates, the benefit of increased company profits and increased social welfare can seem to exist side-by-side, even though in practice a zero-sum contest has to occur over who benefits from mineral extraction. That the EITI can simultaneously recruit the support of so many differing stakeholders attests to the power of the developmental concepts it employs and the overall veneer of assistance and benevolence that it imbues, but a look at what each of these is saying separately serves to highlight the deep contradictions of the approach.

Companies Stake in EITI

Companies continue to be criticized for their performance in developing countries, particularly in terms of their environmental and social impacts (Stiglitz, 2006, 2008). A 'race to the bottom' is seen to have been occurring where countries compete to create the least restrictive and most profitable regulatory regime in order to entice multinationals where the supply of their investment resources is finite and relatively scarce (see Licht, 1998).

Certainly, persuasive illustrative data in Hilson and Maconachie (2009) suggest that companies have been able to feast on super-profits, whilst the

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burden of taxation has been comprehensively reduced in many African countries that have been successful at attracting FDI (2008, p. 36-38). These authors cite figures to the effect that 'Ghana's large-scale mining companies produced not less than (sic) US$5.2 billion in gold between 1990 and 2002 (calculated from Yakubu, 2003), as reported by the Bank of Ghana, the government received only US$68.6 million in royalty payments and US$18.7 million in corporate income taxes from these companies during this period'. [Bank of Ghana, 2003] Taking the 9 per cent of the royalties (US$68.6 million) that go to community development as a separate item (Hilson and Nyame, 2006) (leaving US$62.426 and US$6.174 respectively), and then adding the remaining royalties to the taxes (US$81.126 million), and converting the billions (at 1 is equal to 1,000 million) gives the shares depicted in Figure 1, to illustrate the slice of the pie available for domestic social expenditure and that which returns to the company.

Figure 2: Mine royalty distribution in Ghana

Hilson and Maconachie (2009, p. 34-36) argue that the current 'mining boom', which is also leading to the posting of impressive sounding growth figures continent wide, is due predominantly to the 'overhaul of legislation for the benefit of investors', at least in Ghana, Tanzania and Mali which they review. Various incentives to companies have been enhanced, in areas such as land ownerships and security of tenure, import and export tax regimes and ancillary services and land access (see Filho and Vilhena, 2002). Hilson and Maconachie (2008, p. 35) summarize that

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'the poor economic performance of Africa's conventional mineral producers is more a result of inequitable mining codes than poor governance - that even in situations where revenue mismanagement may be taking place, the quantities of money available to embezzle are insignificant'.

In assessments of relative power, political theorists have long stressed that the powerful are often those who make decisive issues about their behaviour, such as profit sharing, 'disappearing' from view, and by stressing a problem which takes attention away from themselves, such as reporting transparency. This would seem to be an example of that phenomena, when the case that corruption is critical to mal-development is actually weak, but is taken as a given, thus detracting attention from the critical a priori division of reward in mining.

Moreover, joining and supporting the EITI is a small commitment in the face of the benefits of the current neoliberal regulatory regime in Africa. In fact, 'Being a supporter of the EITI does not require any reporting or disclosure requirements in addition to those for all companies operating in the relevant sectors in countries implementing the EITI' [EITI, 2008] Moreover, it does not oblige the company to do much else either, least of all pay a higher price for the materials it extracts. But the benefits in terms of public reputation may be great. In fact, given models of corporate responsibility more generally applicable, the EITI is a frail relative, and may be excessively cheap for the companies to participate in, given their expected benefits. Overall, the EITI demands only that which legal regulation would also require: A full disclosure of accounts.

For example, a review of corporate social responsibility (CSR) by Kyte (2008), a Vice President at the IFC, stresses the 'material' case for these types of initiatives in increased profitability in the long run, as they tend to reduce risks to investment. Kyte's piece also serves as a reposte to the 'moral suasion and …behavioural examples' of Stiglitz, (who is depicted as 'wearing the cardigan of an armchair moral philosopher'), since it is squarely in favour of profitability and 'enlightened self-interest' as a guide to corporate

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affairs (2008, p. 560, 576, 560). But she still stresses that voluntary interventions such as EITI are caused by the 'drivers' for CSR which come from business and financial imperatives, 'effective regulation, including privatisation and public private partnerships, competitiveness, profitability and shareholder/stakeholder value' (2008, 565). Here, there is 'plenty of evidence that the alternative world described by Professor Stiglitz, where it always pays to pollute, is changing' (ibid), and that companies themselves are seeking out positive change for business reasons leading to a 'race to the top' (2008, p. 565, citing Spar, 1998). This is apparently because the 'Bottom of the Pyramid' is the future market (citing Matten, 2006, using the concept developed by C.K Prahalad and others). In this, the poorest people become an enormous untapped market of the future.

Interestingly, she points to CSR policy as directed at three broad areas: 1) a company running its business responsibly in terms of 'internal stake holders', defined as shareholders, suppliers, employees and customers; 2) in relation to the state, 'locally and nationally, as well as to inter-state institutions or standards' and 3) 'business performance as a responsible member of the society in which it operates and the global community' (2008, p. 563).

She claims that CSR requires the integration of environmental management systems, labour standards and fair consumer relations into the 'core business' (ibid). In this, the EITI looks as if it is restricted predominantly to 2), whilst not requiring extensive mainstreaming, or the consideration of wider concerns, such as labour. As such, it looks like a thin requirement for companies to commit to, given the gains they make in influence, networking, reputation and risk reduction.

The EITI probably comes cheap in terms of reputational enhancement, whilst also protecting against areas of practice which are more costly, and subject to litigation, such as practices contained in the US Foreign Corrupt Practices Act (FCPA), or the OECD Corruption Convention. Indeed, Kyte (2008) sees CSR as business-driven, with its moral aspects inevitably producing 'dilemmas'. She poses a hypothetical dilemma as 'how, at the enterprise level, can we navigate differing views on the morality of making profit from the private supply of affordable water or some other fundamental service, versus the morality of allowing

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corrupt or inept governments to promise, but not deliver, free or cheap services?' [Kyte, 2008, p. 564] This is a telling construction since the act of making profits is not the moral issue, only having to do it whilst observing a corrupt government. It illustrates that the view of 'corruption' in play is that which sites it predominantly 'over there' in the developing world, waiting to ensnare worthy private actors. According to Senn and Frankel, in the Oil and Gas Journal, the EITI is 'good for business' but its increased transparency has to be managed to protect the firm's traditional sources of risk protection, since it has the 'pitfalls' that firms could face legal liability for breach of confidentiality agreements or increased scrutiny under the FCPA. In sum, companies' interest in the safety of their investment and protection of their future profits finds voice in 'rule of law' initiatives such as the EITI. To companies, the EITI helps to safeguard the operating environment.

The major financial institutions have used it to 'call for stability, transparency and respect for the rule of law in the extractive industry, particularly in areas in which they have business interest through the multinational companies they invest in' (EITI, 2006). Moreover, these moral high grounds are won by EITI in the aftermath of the highly critical Extractive Industries Review.

Communities

The overhaul of mineral taxation agreements seems to be the key to countries gaining proper compensation (Hilson and Maconachie, 2009, p. 38). In the EITI, there is a broad definition of 'communities' as a stakeholder, which includes civil society organizations that seem to be critically sponsored by donors for the purposes of fulfilling this oversight function, on behalf of the imagined 'community'. There are also cases in which the EITI has given voice and a role to older types of leadership such as traditional authorities.

For example, the role of traditional authorities in promoting the EITI was emphasized by Aterkyi II to the National House of Chiefs in Ghana, who took the opportunity to explain that traditional rulers are 'the fulcrum of development in Ghanaian communities', as well as the 'custodians of the land and natural resources' (Aterkyi, 2007).

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In the role that the EITI gives to a liberal range of social agents, it also arguably sidelines some traditional sites of protest - for example, the social forces and political strategies which have historically fought for increased benefits to workers and communities, including trade union representation and international trade union solidarity, and social democracy at a national level. Arguably, some of these sites of protest, accompanied by more modern representatives of 'community' found in social movements would give a stronger resistance to exploitation by extractive industry companies. To counter the 'race to the bottom', mineral exporters should probably consider an exporters' cartel, disciplined by trade union activities, and a fix on exporting prices - either that, or a postponement of FDI-led growth entirely, on the 'leave the oil in the soil' precedent of social movementism (see Bond et al., 2007).

However, the EITI has done some work in highlighting the lack of development in mining areas. For example, a report in 2006 expressed some serious concerns that there is no visible manifestation of the use of mineral royalties in mining districts, and that monies paid to communities are inadequate (EITI, 2006b). In this sense, it is a 'name and shame' instrument, with the production of evidence supposed to be enough to produce change. Given the weakness generally of mandatory or legislatable international law, it has this feature in common with many more widely known international legal codes, such as the Universal Declaration of Human Rights and its associated instruments. In short, it is a liberal precept which relies on parties being able to reach consensus through moral convergence. For example, Steve Manteaw (2007), at an EITI Conference in Accra in January 2007, stressed the harsh realities that surround mining communities, despite promises of general improvements in life and welfare by both the government and the companies.

As can be seen in Table 3, the consensual approach taken by the EITI suggests 'win-win' outcomes for companies and communities (and, by implication, workers) but the 'increased profitability' and 'increased social welfare' envisioned for them, respectively, remain seriously in contest, as each rely on access to the same revenue base. By presenting the process as a voluntary initiative where all gain, the Secretariat of EITI obscures this.

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Host Governments

The principal benefit to a signatory government is the ability to make a fanfare over little. The holding of a national conference and stakeholder meeting, the publication of a report and anointing of a secretariat all add to the anti-corruption credentials of an administration with little actual cost in the spoiling of nepotism or patronage. Examples of such speeches are numerous. For example, the Nigerian President, in his speech at the First West African EITI Conference in 2008, could confirm the existence of high level corruption in the oil industry, much of which was apparently being organized by influential politicians. He hoped that the conference would 'seriously interrogate this issue, being propelled by the faith that extractive resources can indeed promote growth, enhance poverty reduction and drive sustainable development' (AFP, 2008). Such claims to integrity and avowals of others' lack of it is a common staple of public policy in the era of the 'anticorruption campaigns', but the symbolic significance of the discourse is not generally matched by changes in practice (Bracking, 2007).

Nigeria is, in fact, claimed to be ahead in implementation, in relation to the other 23 or so members of the global body, reported Binniyat during the hosting of the first West Africa Extractive Industry Transparency Initiative (WAEITI), in Abuja (Binniyat, 2008). The EITI has also given traditional authorities the chance to play a role, emphasized by Aterkyi II in the Ghanaian case, who argues that 'traditional rulers are the fulcrum of development in Ghanaian communities, as well as being the custodians of the land and natural resources' (Aterkyi, 2007). In this sense, the positioning of domestic opposition and radical figures behind the initiative does empower those social forces relatively, in that they can lay claim to be the 'moral' custodians of the nation. However, this is often at the cost of a lesser critique of the mineral extractive companies, with whom they are forced into alliance, and against whom they may have been previously campaigning in other ways.

Indeed, a pattern which emerged in a review of the anti-corruption campaign was that adherence to institutional procedures like those embodied in the EITI can leave actual political practice largely undisturbed, whether in terms of reform of patrimonial politics, criminal and/or elite nepotism on the part of politicians, or in terms of bribing practice by companies which

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merely extend their supply chains, employ 'agents' and hide payments as pseudo-legal transfers (Bracking, 2007). In other words, constructing neoliberal 'good governance' norms alongside a capitalist market can be pursued with great apparent zeal by performing elites, confident that patronage and spoils will remain hidden from view. Whether accountability as a social practice will 'catch up' and inhabit these spaces and institutional mechanisms as the populations grow more accustomed to exercising it, or whether the institutional forms will merely crumble for lack of meaningful use, remains open to debate. It is certainly not desirable that institutional reform should, at this stage, be abandoned because it is slow to take effect, or difficult to measure 'results'. There is also some evidence that civil society groups have been able to engage with the EITI with some benefit to their enhanced knowledge and campaigning. However, there are also few historical examples of political elites who decide to give away greater accountability and transparency to populations voluntarily, particularly when it matters materially; a precedent which should make an evaluation of the EITI cautious in the absence of a wide democratisation movement which can force reform in these areas more generically. Instead, political reform is normally won by people against the odds and with threats of oppression and political violence hanging above their heads.

Northern Governments

A public relations boon goes to the donors supporting the initiative since it plays to so many audiences. However, it is worth remembering that the UK, at least, is not as transparent as the code demands. Here is another example of where the South is being encouraged to do that which the North does not: in this case, the profitability of the mining companies is protected, as are their new investments, by opaque reporting standards at the company end of the supply chain. This makes it very difficult, even with the EITI, to accurately assess the distribution of benefit from extractive industries more generally.

For example, and to illustrate this point of inconsistency, the UK National Statistical Office has data on firms' destinations for investment by industrial sector, but much of this data for sub-Saharan Africa are incomplete to the public gaze, as can be seen in Table 4. Thus, the '..' in the table

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indicates that the data cannot be released because of confidentiality considerations. These considerations arise principally because there are so few investors in these countries and sectors (perhaps only one company reporting for each cell category) that they could be identified by a 'knowledgeable party'2, and this is deemed unacceptable by current UK rules for government statistics. From what is included for 'Africa as a whole', we can see that the financial services, retail and wholesale sectors are the largest earners, although the country-based data for the former are largely embargoed, with some large investments also in mining and quarrying, particularly in South Africa. It is worth noting that though investments are relatively slight in global terms, the earnings from African investments are still healthy, as illustrated in Table 5.

2A helpful official at the ONS explained that “ '..' indicates data that may allow the returned survey value of a single respondent to be identified by other knowledgeable parties, this is used to comply with the obligations of the Statistics of Trade Act 1947 which ensures such confidentiality for published data obtained from respondents under the Act in exchange for compulsory and legally enforceable data collection by ONS. This is used to protect potentially commercially sensitive data where a respondent is a major or dominant contributor to a published data value. '-' indicates no data returned for this data cell. '0' indicates data returned, but between -£0.5 million and £0.5 million” Special thanks to Simon Harrington, of the ONS, FDI Surveys for this explanation. An increase in transparency is obviously required here.

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What is informative in these figures is the magnitudes of aid, debt and investment in relation to each other: The Department for International Development's (DfID's) bilateral assistance to sub-Saharan Africa was £1,107m in 2006/07, whilst the net foreign direct investment position in Africa of UK companies in 2006 was £15,455 mill (15 times more), and net earnings from foreign direct investment in Africa in 2006 were £3,479 (three times more) (DfID, 2008; ONS, 2008). In other words, the donor governments can claim a moral high ground for sponsoring the EITI, and indeed in the UK case for housing its Executive within DfID, safe in the knowledge that the overall profitability of extractive industries in Africa, rewards such a stance with dividends.

There are also more fundamental problems with donor agency, its effectiveness and representation. Indeed, the self-representation of development practice by donor governments and the International Finance Institutions (IFIs) inflates their own moral consistency and effectiveness. Donors prefer not to talk about corruption and not to be reminded of the sanctions they once threatened to impose, when other geopolitical and strategic concerns prevail. Such inconsistencies have, historically, served to maintain many a dictatorship, but they sit more uneasily with current norms of neoliberalism and they are more difficult to justify transparently. Corruption may also be overlooked if it involves MNCs and domestic firms of the donor states or if it highlights the more morally questionable features of global political economy. In addition, corruption may be downplayed in the interests of stability, to avoid conflagration and state collapse, or where donors find it difficult to withdraw for humanitarian reasons. Lastly, talk of corruption is much quieter generally when the geography moves to the 'home front', as seen in this illustrative example of the lack of reasonable disclosure in UK statistics.

Discursive Genealogy

The EITI comes at the tail end of similar more generic processes of increasing transparency, in order to reduce corruption, at a global level, led principally by Transparency International. It is also part of a trail of ideological reformulations and initiatives taken by donors on anti-corruption which seek to broadly contribute to enhanced economic well-being. However, it shares the flaws of the earlier precedents. For example, the meanings of

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corruption which are strategically used by the IFIs and the governments of rich 'donor' governments in international development, coalesce around the 'abuse of public office for private gain' (World Bank, 1997, p. 8). Corruption is largely understood in a neo-liberal, economistic, anti-state paradigm which emphasizes politics as a source of rents, such that anti-corruption policy unduly blames the public sector and leaves the private sector without a case to answer. Policy on corruption is thus deeply embedded within the wider constructions of global neo-liberal governance (see Szeftel, 2000; Marquette, 2003; Brown and Cloke, 2004; 2005). Anti-corruption policy is used to positively encourage greater accountability and democracy, and conditionality employed as a punitive driver to persuade recalcitrant governments into better governance practice (Doig and Marquette, 2004). This particular instrument, the EITI, invokes these more generic meanings of anticorruption, as essentially a public sector problem, and sited in the developing country, rather than being instigated by the private sector and supported by global processes of banking opacity. In this way, failures in development and economic growth in mineral exporting countries can be blamed on internal corruption, rather than deficient company remuneration for drilling and extracting, and sharp corporate practice which simultaneously denies and removes profits.

Corruption is perceived as being inimical to national development, but critically, nationally sited, 'over there'. For example, DfID, in its 1997 White Paper on Eliminating World Poverty, proposed measures to help build sound and accountable governments in a bid to help poor people (1997: 30). The consequences of corruption advanced by DfID for the poor are higher prices, fewer employment opportunities (due to market distortion), payments for public services which are supposed to be free, diversion of budgetary resources from poverty reduction into unproductive expenditure and repayment of debt accumulated by corrupt leaders, a loss of tax and customs revenue, lowered economic growth as uncertainty puts off prospective investors, and reduced political representation as elites cling to power to exploit corruption opportunities (ibid). Whilst most of these negative effects are undoubtedly true to varying degrees, the power of calling up the genie 'corruption' is found also in its ability to obscure other things that may be going on. The 'anti-corruption campaign' then serves to deny other types of causality, including where the demand for the corruption comes from within

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a global relationship.3 In terms of the EITI, this critically means taking attention away from paltry rents and compensation paid to developing countries for the exploitation of their resources, by pathologizing domestic governance.

Pogge (2002) has also recently reviewed how the extractive basis of the global economy ill-compensates for resources extracted, and proposes a 'Global Resources Dividend' to make payments more equitable. If un-development is instead attributed to the political economy of development (see Bracking, 2009b), then the 'problem of corruption' can be seen as needlessly fore-grounded, when the behaviour in question is more accurately symptomatic of discrete or individual acts of theft or fraud, or more morally ambiguous, but universal, practices of networking or cronyism. The hazards of this foregrounding, and the instrumental reasons for privileging corruption in political discourse in particular contexts are evident, not least to slate one's political opponent (see Hall-Mathews, 2007). In terms of the EITI, the foregrounding of corruption shores up companies' reputations within a corporate social responsibility paradigm, whilst de-emphasising other aspects of their extractive behaviour, such as the morally reprehensible norms of transfer pricing and inflation of CEO salaries and benefits. Whilst supporters of the EITI would argue, in relation to the latter, that the mechanism is designed to throw more light on these, it is unlikely that this will be the case, when global accounting practices themselves have conventions which protect the perpetrators. A more wholesale global legal reform is needed of accountancy standards.

In the meantime, there are political hazards to be found in the anti-corruption campaigns, some of which are mentioned above, which centrally include the holistic de-legitimization of southern states and polities. If a state is seen as systemically corrupt, the pursuit of objectives such as decolonisation, empowerment, and indigenization, which may involve widespread wealth redistribution, are inevitably viewed as illegitimate acts of graft, punished by international investors and the IFIs. Indeed, political 3 This assertion is not intended to imply that all anti-corruption policy is flawed, or that all anti-corruption policy comes from the IFIs: Developing countries' governments are initiators of policy in their own right.

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culture can degenerate from discussions of substantive policy into accusations of corruption and promises of integrity, as the anti-corruption agenda takes centre stage, promoted as it is by the powerful donor community.

More generally, there are three central problems with the anti-corruption campaign: 1) it neglects internationalized networks and incidence in the North (an insight from the discipline of global political economy); 2) it adopts the language of moral crusade, not democracy (an insight from the discipline of politics and development); and 3) it requires the regulation of sociability, but this differs by spatial location (informed by economic anthropology). Other political hazards of this approach are distinctive to its component policy mechanisms (see Bracking and Ivanov, 2007: 300-301).

The Political Economy of Development

Pogge (2002) pointed out that there is an 'international borrowing privilege', that 'regardless of how a government has come to power it can put a country into debt�; and, an 'international resource privilege', that 'regardless of how a country has come into power it can confer globally valid ownership rights in a country's resources to foreign companies' (summarized by Pieterse, 2002, 1035; see also Pieterse, 2004: 75). Pieterse (2002, p. 1035): 'In view of these practices, corporations and governments in the North are accomplices in official corruption; thus, placing the burden of reform solely on poor countries only reinforces the existing imbalance'.

His argument can, however, be extended to development in general: whilst development policy unquestionably recognizes Pogge's 'privileges', it colludes and reproduces political and economic elites who have the power to throw their own populations into poverty and abjection, with an approach which has been summarized by Joseph Ki-Zerbo (with reference to donor policy at the time of the Moi government in Kenya during the 1990s) as 'Silence, Development in Progress' (cited in Murunga, 2007, p. 288).

Development policy and finance can do this because it critically tips the balance of power in elites' favour relative to the majority population, allowing them to collect rents from the strategic use of the sovereignty they control (see also Harrison, 1999, p. 537-40 on 'boundary politics'; Bracking, 2009a).

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In short, the continuation of poverty and suffering is directly related to the actions of the rich, a point discussed more generally by Pogge (2001, p.

61), when he argues that radical inequality involves violation of duty by the better off because of 'the effects of share institutions, the uncompensated exclusion [of local people] from the use of natural resources and the effects of a common and violent history'.

For example, global social movements have produced convincing evidence since the days of SAPs that neoliberalism generates poverty.

The political economy of aid, whatever the quantifiable metrics of aid effectiveness, is also systemically guilty of reproducing the current system.

In terms of the EITI, which is first and foremost a donor initiative, its role is central in producing legitimacy for the extractive industries. Many in the Western public and beyond believe that aid really does mean 'help'. In this, they have been recruited to a wider ideology of 'capitalist ethics', summarized proficiently by Zizek (2004, p. 503), where 'the ruthless pursuit of profit is counteracted by charity', which 'serves as a humanitarian mask hiding the underlying economic exploitation. In a superego blackmail of gigantic proportions, the developed countries are constantly "helping" the undeveloped (with aid, credits, and so on), thereby avoiding the key issue, namely, their complicity in and coresponsibility for the miserable situation of the undeveloped'. [Zizek, 2004: 504] For such an important job, the relatively low cost of development grants, and in this case, the miniscule actual cost to operating profits of the EITI, can be seen as an efficient advertising budget for the greater public relations job for capitalism that they perform.

Conclusion

The costs of the accumulation that extractive capitalism demands, in lost biodiversity, lost resources and lives, in environmental pillage and lost opportunity costs to do something else, under the guise of Western assistance, is far too great. The EITI, within the broader paradigm of the political

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economy of development, is an example of this wider structure of power.

The balance sheet is a negative, as the SDCEA and its friends in Oil Watch have recognized with their 'keep the oil in the soil' campaign (see also Bond, Dada and Erion, 2007). The achievements of trade unions, NGOs and social movements in the South and North, which have been providing consistent and cohesive evidence of the environmental and social costs of the extractive industries, largely to deaf official ears, must now be recognized in new global systems of solidarity. The production of 'codes of practice' and 'global standards', which are a feeble crutch for an illegitimate capitalism, must be discarded in favour of a proper assessment of what Ferguson described as enclave investments (2005, 2006; see also Mhone, 2001).

Possible routes out of dependent post-colonialism are difficult to find, and face a traditional Marxist conundrum, that it is often better, or at least seems to be so in the short term, to be exploited by capitalism than to not be exploited at all. Maintaining the 'confidence' of business people (or more technically, capital-owners) remains a central concern of even Left-leaning governments for this reason. Those areas, such as the poorest African communities, which receive little or no inward investment or industrialization, believe that they can be better off with more capitalist exploitation of labour through minerals extraction, a problem which explains the willingness of workers throughout history to work for poverty wages, since the alternative has often been destitution. This is the also the chief motivation of governments for applying to be a 'candidate' of the EITI: It underscores the chronic need for Northern investment, given the current inequality of power in the global economy. That the choice can be so structured explains the great power and innovative drive of capitalist social organizations, but does little to further the argument of how to escape dependent development. The view here is that the rewards are too small for inviting extractive MNCs to assist 'development': That it is perhaps better to explore other activities.

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Mhone, G. (2001), Labour Market Discrimination and its Aftermath, United Nations Research Institute for Social Development Conference, Durban, 3 5 September, Conference on Racism and Public Policy Pieterse, J. N. (2002), 'Global Inequality: Bringing Politics Back in' in Third World Quarterly, vol. 23 no. 6, pp. 1023-1046

Pogge, T. (2001), “Eradicating Systemic Poverty: Brief for a Global Resources Dividend” in Journal of Human Development, vol. 2, no. 1, pp.

59 - 77 Pogge, T. (2002), World Poverty and Human Rights: Cosmopolitan Responsibilities and Reforms, Cambridge : Polity Press

Stiglitz, J. E. (2008), 'Regulating Multinational Corporations: Towards Principles of Cross-border Legal Frameworks in a Globalised World: Balancing Rights with Responsibilities', American University International Law Review, 23: 451 Stiglitz, J. E. (2006), Making Globalisation Work,

Szeftel, M. (2000), “Misunderstanding African Politics: Corruption and the Governance Agenda”, in Robert Williams (ed.) Explaining Corruption, Edward Elgar.

Zizek, S. (2004), “From Politics to Biopolitics . . . and Back”, in The South Atlantic Quarterly 103, 2/3, 501-521

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Chapter 5

Re-Agrarianizing Rural Ghana: Can Farming-Based Alternative Livelihoods Reduce Illegal Gold Mining Activity?* Gavin HilsonA and Sadia Mohammed BanchirigahB A

B

School of Agriculture, Policy and Development, The University of Reading g.m.hilson@reading.ac.uk

Institute for Development Policy and Management (IDPM), School of Environment and Development, The University of Manchester

Introduction

In rural sub-Saharan Africa, livelihood diversification is now the norm (Barrett et al., 2001). Throughout the region, a growing number of smallholder farmers, struggling to subsist on earnings generated from sales of their crops, have 'branched out' into non-farm activities, in the majority of cases to supplement incomes. One non-farm activity that has proved particularly popular for hundreds of thousands of rural inhabitants in sub-Saharan Africa over the past 10-15 years is artisanal and small-scale mining (ASM), a low tech, labour-intensive industry with low barriers to entry (Dreschler 2001; Heemskerk 2003; Snyder 2006).

Despite failing to attract much attention in the mainstream livelihoods literature, ASM has become an important topic in international development, its social and environmental impacts spawning extensive discussion * A revised version of this paper has been published in the international journal Policy Sciences.

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(see Hinton et al. 2003; Kambani 2003; Maponga and Ngorima 2003; Kitula 2006). The International Labour Organization (ILO, 1999) conservatively estimates that ASM employs 13 million people directly worldwide. The rapid expansion of its activities in some of the most impoverished sections of the developing world has led many scholars (e.g. Aryee et al. 2003; Yelpaala and Ali 2005; Hilson and Pardie 2006) to conclude that it is a 'poverty-driven industry', particularly in sub-Saharan Africa. Whilst various constituents of the donor community now concede that this may be the case, the prevailing view in policymaking circles continues to be that people become engaged in ASM because of a desire to 'get rich quick' (Barry 1996; USAID 2005; World Bank 2005). These - often-unfounded - views have penetrated policy dialogues at all levels.

The belief that artisanal miners are opportunistic, rather than drawn to gold and diamond-producing areas because of economic hardship, has inhibited investigation aimed at determining the source of the poverty fuelling the rapid, and typically chaotic, growth of ASM. The purpose of this paper is to help bridge this gap, focusing specifically on the situation in sub-Saharan Africa. It is argued that the continued expansion of ASM in the region is due chiefly to the defunct state of smallholder agricultural and ranching activities, which, in turn, is fuelling 'de-agrarianization'. Improved understanding of this de-agrarianization movement is imperative because many African governments and corporate actors have recently launched ambitious re-agrarianization programs in an attempt to minimize the growth of illegal ASM. Several of the agrarian-orientated activities being promoted, however, are no longer considered to be viable, and are often abandoned in favour of ASM. The case of Ghana is used to illustrate these issues.

Livelihoods Diversification and the Expansion of Artisanal Mining in sub-Saharan Africa

In sub-Saharan Africa, as much as 45 per cent of average household income is derived from non-farm activities (Reardon 1997; Barrett et al. 2001; Bryceson 2002). The consensus in the literature is that this 'branching out' is due to agriculture is no longer able to support inhabitants economically; a situation brought about by Structural Adjustment Programs (SAPs). The marked changes that have taken place under adjustment, including the

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opening up of crop parastatals to private sector competition, reductions in export crop taxes, the devaluation of local currencies, and the removal of subsidies on vital crop inputs, have made smallholder farming unviable (Chilowa 1998; Bryceson and Bank 2001; Bryceson 2002). Direct links are yet to be made in the mainstream livelihood diversification literature but throughout the past decade, ASM has emerged as one of the popular - and perhaps the most important - remunerative activity outside agriculture in rural sub-Saharan Africa.

According to the ILO, more than 2.5 million men, women and children are employed in the sector directly in the region (ILO, 1999). Activities are expanding rapidly in countries such as Ghana, Burkina Faso, Mali, Sierra Leone, Tanzania and the Democratic Republic of Congo (Gueye 2001; Keita 2001; Banchirigah 2006; Kitula 2006; Banchirigah 2008). Whilst the growth of this 'wildcat' industrial sector has caused its share of problems (environmental degradation, the spread of infectious diseases such as HIV/AIDS, etc.), most of which are owed chiefly to the illegal nature of its operations and governmental negligence, there is little denying that it has become an indispensable source of income for millions of rural Africans.

This, however, runs counter to a strategy for controlling the expansion of ASM that has gained significant popularity in policymaking circles: reagrarianization. Specifically, rather than taking stock of the de-agrarianization process unfolding in the region, and coming to grips with the importance of ASM as a source of supplementary income for marginalized farmers, many African governments, under the guidance of donors, have launched projects that aim at promoting the expansion of subsistence activities that are agrarian-orientated. These 'alternative livelihoods' are now being seen as the key to curbing the growth of environmentally-destructive illegal artisanal mining in sub-Saharan Africa. But their rapid implementation raises several questions for discussion; the most significant of which is: how sustainable are these activities? 'De-agrarianized' groups in subSaharan Africa who are heavily immersed in ASM are now being called upon to revert to the farming and livestock rearing activities that they had abandoned as full-time occupations because of their limited income-earning capacity. It is argued here that unless policymakers work to address the very factors that have made subsistence agriculture unsustainable in many corners of sub-Saharan Africa, the re-agrarianization approach will do little to slow the growth of illegal ASM activity.

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Many multinational mining companies operating in sub-Saharan Africa have launched an array of alternative livelihood projects which their officers proclaim will help bring illegal mining under control. Specifically, by generating alternative income-earning opportunities, company and government officers are confident of minimizing the number of 'jobless and underemployed people [who] resort to artisanal mining for subsistence' (Labonne and Gilman, 1999, p. 2) on large-scale mining concessions. AngloGold Ashanti, for example, reports of having solicited inputs from the Tanzanian Small Industries Development Organization concerning alternative livelihoods for artisanal miners in Geita.1 As part of a US$3 million community development program, officers at Anvil Mining, currently the largest copper producer in the Democratic Republic of Congo, have identified local business opportunities which they claim are adequate alternative income-earning activities to illegal mining. The company has constructed two permanent marketplaces to support more than 200 local micro-enterprises, established a cooperative gravel venture to provide safe employment for legal artisanal miners, and converted a section of land into a market garden for women (Anvil Mining, 2007). Many other large-scale mining companies with operations in sub-Saharan Africa, including Barrick Gold Corporation, Gold Fields Ltd. and Golden Star Resources Ltd. have launched similar livelihood exercises.

De-Agrarianization and Re-Agrarianization in Ghanaian Artisanal Mining Communities

Over the past five years, 'alternative livelihoods' has become a popular strategy for tackling illegal mining in Ghana; perhaps more so than any other country in sub-Saharan Africa. On its mining gateway, under the heading 'A Case for the Establishment of Alternative Livelihood Project in Mining Communities in Ghana', the Ghanaian Government indicates that 'though mining cannot employ every member of a mining community, the activity creates opportunity for the development of other economic activities or 1 'Case studies - Tanzania: 5.5. Understanding and working with artisanal miners in Africa' 'http://www.anglogold.co.za/subwebs/InformationForInvestors/ReportToSociety05/values_b us_principles/community/c_cs_tzn_5_5.htm (accessed 5 January 2008).

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Alternative livelihoods‌ [which makes it necessary] to develop Alternative Livelihood Projects (ALP) otherwise known as Local Economic Development Projects (LED).2 Whilst several corporate partners have responded positively to the government's call (see Table 6), the challenge is nevertheless daunting: Countrywide, illegal artisanal mining employs an estimated one million people directly and has created hundreds of thousands of additional jobs in burgeoning downstream industries (Banchirigah, 2008).

Aside from a small collection of analyses, few attempts have been made to contextualize the de-agrarianization pattern rapidly unfolding in rural stretches of Ghana; there is even less analysis identifying the types of activities into which impoverished rural farmers are diversifying. Whilst 90 percent of Ghana's agricultural produce originates from smallholder farming (Nyanteng and Seini 2000), there is little disputing that the marked changes in agricultural policy that have occurred under adjustment have made the sector increasingly unviable, which has spawned a frantic search for viable income alternatives in rural environments. The removal of subsidies on fertilizers and fungicides (Nyanteng and Seini, 2000)3 has proved particularly burdensome for the country's smallholders. The sudden rise in costs, coupled with the devaluation of the exchange rate, have made the acquisition of these vital farm inputs - now sold in dollars and other foreign currencies difficult. The deterioration of extension and credit services, which began toward the end of the 1980s, has made smallholders' situation even more precarious: '[The] breakdown in‌extension services has hit the smallholder farmer particularly hard. When the service was operating, government emphasis on small farmer production ensured that a 2 'A Case for the Establishment of Alternative Livelihood Project in Mining Communities in Ghana' http://www.ghanamining.org/ghweb/en/ma/mincom.html (accessed 15 January 2008).

The Ghanaian Government agreed to eliminate subsidies by 1990. By 1992, fertilizer prices had increased by 32 percent, and the costs of insecticides and herbicides has tripled.

For example, the price paid by farmers for compound fertilizer in 1983 was 58 cedis/bag compared to 3600 cedis/bag in 1989. During the same period, the cost of sulphate of ammonia rose from 45 cedis to 2350 cedis (Weissman 1990; Sarris and Shams 1992; Nyanteng and Seini 2000).

3

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Source: OICI, 2006

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certain proportion of inputs, mainly fertilizer, hand tools and seeds, reached the subsistence farmer through the field extension staff‌Over the years, some 40 percent of the small farmers in the country have [also] received credit. Credit in Ghana, however, is [now] plagued by high intermediation costs and poor loan recoveries‌At present, with lending rates at 26 to 30 percent, few businesses can afford to borrow as financial costs are excessive' [Sarris and Shams, 1992, p. 205-206, 186] Whilst explicit links have not been made in the literature, there is evidence pointing to Ghana's smallholder farmers diversifying into non-farm income-earning activities 'to ensure self-sufficiency for their families' (Jamal, 1995, p. 19). During the early stages of Ghana's adjustment program, Weismann (1990) reported that currency devaluations and stringent credit restrictions were crippling the country's rural farmers. Following removal of these subsidies, rural livelihood diversification patterns began to emerge, largely because small-scale farmers '[did] not have much opportunity to avoid or internalize the many risks and uncertainties which they face[d] in production and post-harvest activities' (Nyanteng and Seini, 2000, p. 281). Appleton and Collier (1990) confirmed at the time that rural households of all strata were, in fact, engaged in a range of income-earning activities apart from farming. It was also at about this time that policymakers began to express concern over the sudden upsurge of ASM operations. The World Bank declared, in the early 1990s, that as many as 30,000 were involved in the sector's activities (World Bank, 1995).

Today, at least 40 percent of rural Ghanaians are engaged in non-farm activities (after Barrett et al. 2001; Lanjouw and Lanjouw 2001), in large part because the situation is even bleaker for smallholders than it was 15 years ago: 'About 35 per cent of Ghana's farmers are poor, practising mixed forms of agriculture that are risk-prone and heavily dependent on rainfall. With many farmers hampered by poor infrastructure, marketing systems have remained underdeveloped, locking poorer farmers into subsistence agriculture. Too much dependence on petroleum and other indirect taxes which constitute about 67 percent

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of tax revenue, is taking its toll on the real incomes of citizens and consequently on purchasing food'.4 Over the past 10-15 years, ASM has emerged as a popular - and perhaps, the most attractive - non-farm option in the country: there is a burgeoning body of evidence that points to an unviable small-scale farming sector, and the general uncertainties surrounding subsistence agriculture, fuelling the growth of ASM. Mate (1998), for example, reported nearly ten years ago that in Ghana, 'artisanal gold mining may employ some 40,000 people, particularly in the dry season'. Today, many of the country's chief large-scale mine operators share the same view. For example, in the most recent annual report of AngloGold Ashanti, Ghana's largest gold producer, it is reported that 'artisanal miners are often simultaneously engaged in subsistence farming and other similar low-income livelihoods' (AngloGold Ashanti, 2006, p. 124). Yakovleva (2007), who has carried out one of the most comprehensive analyses on de-agrarianization in Ghanaian ASM communities to date, reinforces this claim. Drawing upon findings gathered in Noyem, a town in the Eastern Region of the country, the author argues that local farmers often sell their produce to local communities that lack purchasing power; are limited in their production because of ineffective agricultural processes and a shortage of resources; and that their consequent impoverishment is the main reason behind many 'joining galamsey activities in the region' (Yakovleva, 2007, p. 35).5 A more recent analysis of ASM activities in the town (Banchirgah, 2008) corroborates these conclusions, reporting that 'the emerging pattern in Ghana is the rural subsistence farmers moving into ASM to complement their earnings‌[with] all signs point[ing] to farming being unviable due to climatic uncertainties and market fluctuations for crops' (Banchirigah, 2006, p. 7). There are numerous other studies (e.g.

Amankwah and Anim-Sackey 2003; Aryee 2003; Aryee et al. 2003; Hilson and Potter 2005; Hilson et al. 2007) which confirm the existence of vibrant

4 'Barriers to Agricultural Trade' http://www.africanexecutive.com/modules/magazine/sections.php?magazine=84&sections=30 (Accessed 23 December 2007).

5

Galamsey is a local term for illegal mining.

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ASM communities in many of the so-called 'agricultural breadbaskets' of Ghana, including Dunkwa, Tarkwa, Bibiani and Obuasi.

Within the towns where large-scale mining and mineral exploration activities take place, the unemployment rate for Ghanaians aged 15-24 hovers between 70 and 90 per cent. Not surprisingly, artisanal mining activity has taken root in many of these localities because the 'farmers and smallscale miners who lose their land to mining companies have very few means for survival in the formal economy' (Carson et al., 2005, p. 41). The ubiquitous occurrence of gold and low barriers to entry makes galamsey activity attractive. In a futile attempt to control illegal mining, the government has coordinated periodic military 'sweeps' to remove galamsey from company concessions. The most recent effort, Fight Against Illegal Mining or 'Operation Flush-out', was carried out in September-October 2006. These efforts, combined with escalated backlash from rural communities over the lack of jobs generated by large-scale mining and mineral exploration activities, have fuelled a frantic search for potential income-earning alternatives to illegal mining in recent years.

Ghana's alternative livelihood 'facility'6 for ASM emphasizes 'forced' reagrarianization, its constituents championing agrarian activities as safer and more attractive income-earning alternatives to illegal artisanal mining. The priority has been to develop - and in many cases, establish - a host of farming and livestock activities traditionally undertaken in the country, including cocoa farming, snail cultivation and 'grass-cutter'7 rearing, as well as 'non-traditional' activities such as sericulture and mushroom farming.

Whilst it is perhaps too early at this stage to draw concrete conclusions about the effectiveness of the facility, in each of the areas where these agrarian activities are being promoted, including New Abirem, Prestea, Obuasi and Dunkwa, galamsey activities have, in fact, increased. This raises the question: How sustainable are these activities, many of which were initially abandoned in favour of artisanal mining because of production and financial 6 The word 'facility' is used here in a metaphorical sense. There is, of course, no national alternative livelihoods program per se but rather a collection of different exercises, each emphasizing similar things.

The grass-cutter (Thryonomys swinderianus) is a rodent of the suborder Hystricomorpha, whose natural habitat is the tall grassland of the Guinea Savannah.

7

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challenges? As one key stakeholder put it in an interview, in order to discourage illegal artisanal mining in Ghana, 'we must prove that moving them will get them at least what they are getting as galamsey'8 - in other words, ensure that these alternatives are capable of generating equivalent or greater financial returns than gold panning. This requires, inter alia, subsidizing the crucial farm inputs that rural smallholders can no longer afford, as well as improving their market positions.

Whilst there is little evidence to suggest that this is taking place, it has not prevented certain companies from branding the agrarian activities they are promoting for catchment communities as 'sustainable'. For example, Gold Star Resources, a US-based and Canadian-listed gold mining company with operations in Bogoso in the Western Region of Ghana, has launched a series of projects under the auspices of its 'Sustainable Alternative Livelihood Project', including sericulture and chicken farming. The jury is still out on both initiatives. In the case of the former, only a handful of farmers have been trained, and the country is neither a major consumer nor an exporter of silk; and in the case of the latter, only 100 chickens have been distributed throughout the town, which has a population over 30,000 (Hilson and Banchirigah, 2009). Similarly, Newmont Ghana Gold Limited has launched an array of agrarian activities within the communities surrounding its Kenyase and New Abriem operations, one of which is snail rearing (Anderson, 2006), despite evidence that 'raising snails alone does not produce enough income to sustain a family's survival' (Carson et al., 2005, p. 62). These standalone projects, most of which provide menial economic returns, will likely do little to discourage illegal mining activity.

How aware are Ghana's principal large-scale mine operators of the drivers of livelihood diversification in rural areas of the country, and the limitations of farming and ranching as a source of livelihood in a de-agrarianized artisanal mining landscape?

Criticism could mount against the country's large-scale miners in upcoming years over the promotion of ineffective agrarian-orientated activities for rural populations; but in their defence, community development officers

8

Interview, company official, Accra, August 2005.

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have been provided little guidance on how to go about identifying appropriate alternative livelihoods for artisanal miners. Whilst pursuing what is clearly a policy of 'forced re-agrarianization', it could be a case of corporate actors assuming that many of the agrarian alternatives being promoted, including cocoa farming, snail harvesting and cassava cultivation, are viable alternatives, as they have long been economic mainstays in rural Ghana.

The presumption could be that people have been driven to work at artisanal mines because they lack the start-up capital for their farms, with diversification seen by mining officers as a desire on the part of rural inhabitants to continue farming, and decisions taken to promote supplementary 'non-traditional' agrarian activities such as sericulture being genuine efforts to diversify galamsey communities.

To their credit, each of Ghana's major mine operators have solicited the services of Opportunities Industrialization Centers International (OICI), a Philadelphia-headquartered NGO that has been working to improve the quality of life of low-income groups in the developing world since 1970, to assist with the identification of appropriate alternative livelihoods. The organization, however, is promoting similar activities in environments with different climates and markets. Whilst perhaps premature at this stage to label these activities as failures, recent research undertaken by the authors in selected galamsey communities (see Hilson and Banchirigah, 2009) indicates that they are doing little to discourage illegal mining. Their analysis reveals a failure on the part of OICI to take into account the factors fuelling de-agrarianization in rural Ghana, as well as the challenges with netting sufficient incomes from the agrarian-orientated activities it is promoting.

In summary, the efforts being made in Ghana to 're-agrarianize' ASM communities should by no means be viewed as best practice at this stage.

There continues to be a poor understanding in policymaking circles of why people are abandoning farming in favour of ASM in the first place, as well as why smallholder farming has become an unviable economic activity for many of the country's rural peasants. Until government officials and corporate partners - in Ghana and elsewhere in sub-Saharan Africa - come to grips with these issues and act accordingly to make agricultural production and livestock rearing more sustainable, illegal mining activity will continue to expand unabated.

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This paper has argued that the continued expansion of ASM in sub-Saharan Africa is owed chiefly to the defunct state of its smallholder agricultural and ranching activities, which, in turn, is fuelling 'de-agrarianization'. Despite the movement of a growing number of rural Africans from farming into non-farm activities, foremost ASM, governments and private sector partners have launched ambitious agricultural-based 'alternative livelihood' programs in an attempt to minimize the growth of illegal ASM. Several of the activities being promoted, however, are no longer considered to be viable, and are often abandoned in favour of ASM in the first place. As the case of Ghana has shown, there continues to be a poor understanding in policymaking circles about why people abandon farming in favour of non-farm activities such as ASM, and until this gap is bridged, the latter will continue to expand rapidly.

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Chapter 6

Mining and Impoverishment: Beyond Direct Foreign Investment?

Ray Bush POLIS, University of Leeds, UK

Introduction: Challenging Impoverishment

The enormous challenges that confront mining-dependent economies and communities affected by mining can be broadly grouped into three categories: Empirical, theoretical and policy. In many respects, these issues have been central to concerns confronting mine-affected communities for more than 25 years (Lanning 1979). Indeed, this is one of the issues we need to explore: Why has there been so much continuity in the debates about the impact of mining in Africa? Why do the international financial agencies, especially the World Bank, continue to argue that developing mineral extraction is a key to development in the 21st century for Africa? And why does development not take place at the promised pace or with the declared benefits espoused by corporations, governments or many traditional leaders? This paper will briefly examine some of these questions, and will then locate the broader general concerns with mining-affected communities in the context of two villages in Ghana's Western Region.

One of the most overarching continuities in relations between communities and companies is the dispossession of villagers from land. The failure of land to be effectively substituted by a replacement source for production and community reproduction is a persistent feature of Africa's rural underdevelopment - of the active impoverishment of peasants who become dislocated from their means of production and social reproduction as mine operations remain within enclaves of largely expatriate wealth and activity.

The three themes of empirical, theoretical and policy that this paper examines relate to the consequences of mining in Ghana's rural communities;

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how we might understand the connection and interrelationship between mining companies, the state and communities; and what policy implications emerge that do not simply call for either more or less regulation of MNCs. Are there policies, informed by field research, of how communities cope with displacement and impoverishment resulting from mining that can go beyond debating FDI per se? And, are there issues relating to characterizations of artisanal mining and challenges to property rights that have emerged from 'illegal' (galamsey) operations?

Hopes and Aspirations

Africa's history has been structured by European demands for its resources.

Resources have included trade in human beings during the slave trade and variations in colonial transformation from the most brutal actions of Belgium in Congo for rubber and ivory, to formal British colonialism in West Africa for gold and agricultural produce (Hochschild 1998). The exploitation of Africa's resource base has been well documented and increasingly well theorised (Rodney 1973; Bond 2006; Bush 2007). The continent’s development history since World War II has repeatedly been viewed with waves of optimism and pessimism that economic growth will be driven by extracting its resources. Most recently, in 2006, the highest metals prices for 20 years ushered in the most recent period of heightened expectation and aspiration but it was short lived. By July 2007, as indicated in Figure 3 below, the commodity price index plummeted and the international financial institutions were once again trying to explain why, amongst other things, mining could still be in the vanguard of development opportunity. But this opportunity would not be realized until capitalism's most recent and acute crisis recovered from the mayhem blamed on unregulated bankers.

Recent empirical analysis of mining and resource-led growth has been confronted by the continuity of confidence that mineral extraction can drive growth and development. Yet, except for the African case of Botswana, there is little evidence of sustained mineral-led growth. And, indeed, even in the Botswana case, recent analysis has not parroted the southern African success story but indicated how blighted dependence upon minerals - in this case, diamonds - has actually been. There has also been a view that mineral-led growth in Botswana has been driven by or at least accompanied by

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Figure 3: Commodity Price Index, 2005 = 100, includes both Fuel and NonFuel Price Indices

Source: Index Mundi: http://www.indexmundi.com/commodities/?commodity=commodity-priceindex&months=300 (accessed 7 July 2009)

authoritarianism, and that political structures have overseen internal displacement and failure of generalized wealth creation (Good 2008). Instead of focusing on whether or not there is a new 'scramble' for Africa's resources, it now seems more appropriate to ask how the continent will manage resource development in the downturn. What are the possibilities for the economies like that of Ghana to manage decline in mining revenues (although gold continues to buck the trend of calamitous falls)?1 It is important to also ask how effective judicial oversight is of mining corporate 1 While the price of copper fell from $7,118 a metric tonne in January-December 2007 to $4,046 mt in January-June 2009, gold increased in value from $697 troy ounce to $915 in the same period (World Bank 2009)

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activities. Ghana's new government has the mandate to re-visit issues linked to scrutiny of corporate taxation and levels of royalty and to explore the robustness of the national regulatory regime. But does it have the current capacity to deliver a more robust and equal relationship with the mining companies, and an ability to mediate between corporate interests, the national development agenda and the demands of local mine-affected communities?

In many ways, the debate of control and regulation in Ghana's mining sector was foregrounded by the outgoing New Patriotic Party (NPP) government. That government was keen in election year 2008 to show its support for communities affected by mining. It wanted to garner votes from an electorate many residents in the country's Western Region felt had been forgotten. The outgoing Western Regional Minister noted to mining executives: ...we are all aware that the affected communities have lived on your concessions where they earned their livelihoods for centuries, and to displace them without assuring them of a regular and sustainable source of livelihood is to say the least, unfortunate... (The Chronicle 22 August 2007).

Understanding Rural Transformation

Policymakers have argued over the importance of mineral-led growth for Africa, and they have done so indicating the importance of the continent taking advantage of comparative advantage from mineral availability and the need to benefit from globalization. Yet, this has done little to explain the systemic character of Africa's crises of accumulation, production and distribution. And, it has certainly excluded effective debate about the impact of mining on communities. Instead, donors and policymakers continue to offer the mantra of the need for improved governance to facilitate increased DFI and more efficient management of the continent's resources (World Bank 2000; McPhail 2000).

The preoccupation of donors with governance has skewed debate about resource-led growth towards reiteration of the 'resource curse' - that poor resource-endowed economies grow less quickly than economies less dependent upon rents from mining. The explanation for this assertion is that rent leads to authoritarian government and 'Dutch Disease'. 'Rentier' states

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maintain authority by distributing largesse rather than governance based on citizenship, taxation and electoral politics. And, ‘Dutch Disease’ contributes to this authoritarianism as increases in the value of exchange rates, following increased rents from mineral or other resource sales, sucks in imports and undervalues local economic activity, especially in non-tradable and agricultural goods (Ross 1999; Auty1995). The difficulty with the theoretical approach to resource-led growth that employs the resource curse as the lens through which to view the relationship between companies, states and communities is that it fails to locate discussion at the level of capital accumulation. The idea of the resource curse does highlight empirical patterns of similarity between different states but does not adequately allow for an analysis of the contested terrain between states, MNCs and communities; neither does it explore the competition within states regarding struggles for capital accumulation.

To enable a more thorough and clearer exploration of the consequences of mining in general, and Ghana in particular, it is important to explore the debate on abjection (Ferguson 1999; 2006). Abjection refers to the process of people 'being thrown aside, expelled or discarded,…thrown down, debased and humiliated' (Ferguson 1999: 236). Ghana's poor or those affected by mining in other parts of Africa are not poor because they have been excluded by the process of development but because they have actively been expelled in the process of underdevelopment. While there has been a continuing debate on de-peasantization and de-agrarianization (Bryceson 1997), the idea of abjection enables an analysis that can also be grounded in patterns of persistent primitive accumulation (Harvey 2003).

One of the distinguishing features of capitalist development in Africa is the repetition of processes associated with original capitalist accumulation in Europe. These are, as Harvey has noted, for example, the privatization of land, peasant populations being expelled from the land, and a reduction or erosion of rights to the commons. A further recurring feature is the presence of coercive labour regimes, despite rhetoric of the improvement in conditions of labour and the spread of wage labour (Harvey 2003: 74). The patterns of displacement and resource extraction in Ghana's Western Region are better described as accumulation by dispossession (Harvey 2003; Perelman 2000; Luxemburg 1968). The tools made available by recent Marxist analysis of accumulation in the Global South help to explain

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theoretically, the patterns of underdevelopment in Ghana. The notion of accumulation by dispossession also helps contextualize why the strategies employed by companies to demonstrate their corporate social responsibility through the implementation of large numbers of alternative livelihood strategies, for example, will simply not work. They cannot substitute for land loss. Corporate-devised strategies of generating income do not generate sustained wealth creation and employment creation.

Policy Questions

Understanding the type and pattern of accumulation in Ghana becomes central in asking what strategies the state may be able to pursue in its negotiations with MNCs. This takes on added significance in the contemporary capitalist crisis. Are the previously employed strategies of 'control' or 'regulation' of DFI the only apparatuses available to the neo-liberal post-colonial state, or is it feasible to ask if there is now a new opportunity for the 'post' neo-liberal state to intervene in promoting capital accumulation that does not dispossess, displace and disrupt rural Ghanaian social formations?

Do we need new tools to understand what is happening, and if so, what are they? What kind of social and political constituency is important to assemble to promote state and public policy reform? Is it possible for African states to explore different relationships beyond the 'traditional' corporate interest of the western mining houses to engage on a more equal footing with China and India? And if so, what would be the possible impact on community development? Finally, if one of the difficulties that emerges from accumulation by dispossession is the persistent recreation of enclave development, how might mining development avoid the tiny and narrow but also socially calamitous exploits of the enclave?

Within the list of empirical, theoretical and policy questions, there is also the need to ask what might be generic questions and what will be specific to country cases. Here, the analysis will need to examine the social class constituency that shapes policy and accumulation; what mineral resource is being discussed, which companies are involved in the extraction, and how politically robust is the state to hold companies to account? And, just as the social constituency of the state is important and the institutional mechanisms to hold companies to account, governments must also be held accountable by community advocacy groups and worker interests.

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Three Villages: Accumulation and Resistance?

Fieldwork was conducted in three villages that were all affected my mining.

Two of these were in Wassa West in the Western Region, and one near Obuasi in the Ashanti Region. One of the Wassa West villages had been resettled because of the development of open cast mining. Villagers were denied access to their historical lands. Another village had not been resettled or relocated but there was increasing pressure for land as a neighbouring mine concession had expanded. There were also increased environmental concerns for villages at the second location. Land and waterways had been polluted and air-borne pollution from dust created by huge ore-carrying trucks passing daily through their village in large numbers impacted on villagers' health The third village in Ashanti experienced chronic neglect. There was partial access to historical land but also evidence of pollution of waterways.

Grievances expressed by respondents were many - common and widely shared. Inadequate and insecure access to land was the most overarching expressed concern. For the first Wassa West village, there remains confusion regarding resettlement. Many noted that promises accompanying plans to resettle the village were not met by either the Government of Ghana or the mining company. Unemployment in all villages was high, especially among the youth who had received promises of work from the government and mining companies but these had not been delivered upon. It was also evident that a cleavage had emerged (and perhaps deepened) between traditional authorites and the youth. Chiefs and elders in all three villages were accused of being too sympathetic with the mining companies. Chiefs were often used in the development of patron-client relations by companies as corporate largesse was distributed to them to encourage traditional authority to control their youth, and to fulfil some tasks of labour hire for routine but mostly occasional mine maintenance. One respondent noted how she had never received compensation from the mine after losing her farm. The mining company had paid the chief compensation for all villagers and it was her responsibility, she was told, to get the money from him (Interview, Village Respondent, 25 August 2009). The issue of compensation from the mine, or rather the lack of adequate compensation and the feeling of being cheated were systemic in all three villages. On contesting the absence of

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declared compensation for the loss of immature teak trees, one respondent was told by a mining company to seek redress from the courts. Poverty meant the respondent could not afford to employ a lawyer or take the company to court. The respondent, who had worked for 10 years as an artisanal miner, noted: 'The mining companies are not interested in developing this village‌If nothing is done to solve these problems then we will all engage in armed robbery' (Interview, Village Respondent, 25 August 2008).

There were two major clusters of response from respondents who reflected on the consequences of mining in their locality. One was the repeated lament regarding dislocation from land. The other was the failure of village authority to adequately contest and transform decisions by government and companies that were recognized as subverting village livelihoods. These two clusters of issues have significance for trying to think beyond DFI. If at the core of village transformation is a process of abjection - depeasantization driven by corporate activity that is constantly reproduced - then the activity of MNCs needs to be opened out further than rhetoric regarding corporate responsibility initiatives. Those communities and households that retain some access to land also retain self-provisioning, despite varying degrees of economic crisis and male exodus. The empirical case in the three locations reinforced the centrality of land. The theoretical implications raise questions about the process of underdevelopment where poverty is created by corporate activity as households lose access to land, livelihoods, food and guaranteed, albeit low levels of livelihood. And, policy implications become located in whether mining companies can be encouraged to compromise on issues of property rights, access to concessions where the companies may not be mining and where there can be relations established between mine executives and communities that go beyond platitudes of openness and transparency. Nowhere is the issue of problematizing DFI more important and how mine companies might rethink property rights than the debate regarding artisanal and small scale-mining.

The debate about galamsey is extensive (Hilson 2007a; Hilson et al.

2007). Yet, the policy implication of imposing the erosion or formalization of artisanal mining has largely missed two crucial issues: 1) the significance that galamsey plays for community survival; and 2) the way in which artisanal mining might be seen as a resistance to DFI, and certainly to government authority.

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By so doing so, the resistance offered by artisanal miners to government policy might become a vehicle for opening the debate on the implications for rural development and by extension, property rights and the sovereignty of concessions.

In all three villages, women-headed households noted that neighbouring galamsey operations provided a lifeline to their survival and that of the village. Women work with and for the galamsey gangs. They also provide the workers with food. Several respondents noted how government-enforced closure of artisanal mining operations led to the dramatic income loss of villages and female-headed households were especially challenged as sole bread winners. Women who provided food for the miners lost income overnight and were left with debts that had emerged following loans to buy pots and food to supply the galamsey workers and operators.

The way resettlement and removal of artisanal miners from the vicinity of village communities impacted on women is dramatically reported by one respondent. She was 45 years of age and married with seven children in the resettled Wassa West community.

I sell rice and stew to the people in this community. Currently, life has become unbearable for me as I do not have enough money to cater for my children since my husband is unemployed. When I was in (the old village) I used to make a lot of money from the sale of rice and stew, mainly because galamsey was in operation and business was booming. Now I sell the rice once a week due to lack of a market. My children have only been educated to the basic level and have not been able to further their education because of no money. They are now in the house doing nothing. . . [Before we were resettled] we had a farm which sustained us. Now we lack water, roads or hospital. The taps flow twice a week at dawn and we have to walk long distances for water. We did not face this problem in the old village as we had a stream that was clean‌The mining company promised us that life would be better in the new location but I realize we have been deceived’ (Interview, Village Respondent, Wassa West 25 August 2008)

New and dramatic debts led to acute family survival strategies, including changes in household diets, the removal of children from school and

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increased burden placed on extended family networks in the search for food.

The removal of galamsey by the police and military in the summer of 2007 meant a decline in effective demand in village markets and significant male 'out migration', especially of youth from one village in search of galamsey work as in gold sites further afield.

An alternative response to the issue of Ghana's more than four million artisanal miners would have been to understand more clearly the links miners had with neighbouring communities, the importance of providing broad employment and income-earning opportunities and how the Government of Ghana might more creatively use the pressure from small-scale miners to improve access to benefits from DFI. It was clear from village interviews that the local fabric of community life, without romanticizing 'the village', was receiving a massive challenge. Yet, the Government of Ghana responded to the initiative of local youth and migrants who tried to benefit from galamsey by demonstrating commitment to the agents of DFI. Viewing artisanal mining as a law-and-order issue would never enable the state to explore what subsidy galamsey actually provided to rural development in Ghana. The erstwhile NPP government of Ghana had no effective response to the challenges in the countryside of male exodus, undermining social fabric resulting from economic crisis that led to increased prostitution, theft and unemployment of both skilled and unskilled sections of rural Ghana.

Removing galamsey showed the mining companies that the government was serious about 'law and (dis)order' and protecting investor interests but it did little to address declining effective demand that drained communities and wasted lives.

Artisanal mining continues to be commented upon in Ghana as a criminal activity - when it is not pursued on government demarcated concessions with registered miners - and operators are variously described as vandals and environmental polluters. The rhetoric of criminalization provides the rationale for police roundups and military impounding of equipment. But the persistence of artisanal mining and the failure of a law-and-order state response indicated not only the vibrancy of galamsey, the prospect and allure of a quick return with the discovery of gold but also a resistance to enclosure of community land.

It may now be important for Ghana's new NDC government to be more creative in its dealings with such an important sector within mining. This

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can be promoted if there were to be a debate on how exactly a mining strategy could emerge that places at its core, the communities hitherto dispossessed of their assets in making way for corporate expansion and state maintenance of order. Law-and-order strategies have been employed to show the seriousness of Ghana's state to defend and promote DFI but in the process, issues of community development have been lost. The protection of companies rather than communities (and the failure to address mutual interests) has denied villagers access to wealth generated by artisanal mining. And, this is after communities under investigation have already been denied corporate and government promises that DFI would deliver employment, growth and development.

But villages cannot be viewed as homogenous units. I have noted how the youth and elders are often at loggerheads and how female-headed households and children's wellbeing has been challenged by the removal of artisanal mining sites and the militarisation of parts of gold-bearing Ghana.

The response of sections of the galamsey operators is to rhetorically claim knowledge of militant struggles in the Niger Delta. Many respondents, especially in Obuasi, angered by perceived local authority passivity and AngloGold Ashanti's aggressive defense of its concession, have claimed they could become more violent in their struggle for a livelihood.

The corporate response to community claims of impoverishment is that this is not the responsibility of mining companies. They are not development agencies and they pay royalties and taxes to governments whose legitimate responsibility is to promote rural development. Companies now engage with and advance the notion of corporate responsibility and their advocate in Ghana is the Chamber of Mines. Its chief executive has noted the commitment of the Chamber to; core values of honesty, transparency, good governance, good corporate citizenship and total commitment when providing leadership to solve national issues relating to mining.

Yet, what exactly that leadership role actually involves is moot. It is fashionable in the contemporary era to talk about stakeholder interests where the tripartite relationship between companies, governments and communities are mutually reinforcing - they all meant to have the same shared

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interest in boosting mineral extraction and sales. But as this paper has indicated, the assumed axiomatic concern to reify equality of interests is at best misplaced and at worst, helps to impoverish communities impacted by mining. The impoverishment has extended to human rights abuses (CHRAJ 2008) and challenges amongst other statements, those made by Gold Fields that they 'factor communities into every aspect of mine development' (Interview Gold Fields Official, Tarkwa, August 2007). AngloGold Ashanti has gone as far as to assimilate the mine interests with those of the town, thus it is not uncommon to hear mine executives parrot the mantra, 'Obuasi is the mine and the mine is Obuasi' (Interview AngloGold Ashanti official, Obuasi, August 2007).

Mines have initiated for many years now the idea that while recognizing that they are not development agencies, they can compensate communities for land loss and promote 'alternative livelihoods' and rural development.

The shortcomings of this strategy are now well known (Hilson and Banchirigah 2009) and they have served to displace a systemic reappraisal of DFI.

Moving Forward

This paper has sketched an agenda for debating the movement of ideas beyond DFI. It has done so by suggesting there are three clusters of themes that need to be interrogated when examining the impact of mining in Ghana.

These are empirical questions - just what is the extent of the contemporary involvement of multinational capital; theoretical questions - just how can we explain the empirical observations of the impact of FDI in Ghana's countryside and in particular, in communities affected by mining; and finally, policy questions that need to be explored and that should follow the analysis of the previous two groups of questions.

The Government of Ghana, during the last years of NPP rule, conceded that the persistence of galamsey seemed to be a feature of rural Ghana and ran a twin-track policy towards them. The first track was the one I indicated here which concentrated on attacking them, removing them from concessions and confiscating their equipment. The second track has been to try and license some galamsey on government approved sites. The purpose of that was to control and regulate these miners and the numbers of sites but

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the numbers of miners who have had the energy, money and knowledge to register has been small. Licensing is unlikely to meet the felt need of individuals and communities affected by mining. The needed scale of registration is beyond the level of investment provided by the government and the land allocated for the miners is inadequate in both the abundance of gold or in the scale of territory demarcated.

The courageous strategy the Government of Ghana needs to begin to map out is one that unapologetically problematizes property rights. After a process of decriminalizing the artisanal mining sector, the Government of Ghana will be in a politically stronger position to counter global mining strategies. This would allow a conversation to emerge between government, companies and communities, where artisanal miners were well represented as well as other sections of village groups to assess ways in which companies no longer had unchallenged sovereign rights over concessions. While companies and the international financial agencies and donors would no doubt stress the need for all private investors to have continued untrammelled security of property rights it is precisely this assumption, and the ways in which companies recreate enclave development that has created the animosity between 'stakeholders' in the contemporary period.

If mechanisms were developed to incorporate artisanal miners into concessions as equal partners who could not be expelled when it suited the companies to do so - for example, when there is a spike in the gold price or if galamsey operators discover gold missed by the companies - there could be the start of a process of genuine rural stakeholder empowerment. This would also be a way of negotiating an alternative relationship between companies and DFI and the collective management of a joint mechanism to extract gold. This would still leave big issues of how the government will access increased royalties and taxes from mining companies. But this would seem an entirely legitimate proposal to explore in the context of contemporary capitalist crisis, worsening conditions in villages affected by mining and the desirability of revisiting the idea of a development state in the Global South.

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References

Auty, Richard, M 1995 Patterns of Development: Resources, Policy and Economic Growth. London, Edward Arnold

Bryceson, D.F. 1997 Farewell to farms: Deagrarianisation and Employment in Africa. Aldershot, Ashgate Publishing

Commission on Human Rights and Administrative Justice (CHRAJ) 2008, the State of Human Rights in Mining Communities in Ghana, mimeo, Accra

Ferguson, James 2006, Global Shadows: Africa in the Neoliberal World Order Duke University Press, Durham and London

Ferguson, James 1999, Expectations of Modernity: Myths and Meanings of Urban Life on the Zambian Copperbelt. Berkeley, University of California Press Good, Kenneth, 2008, Diamonds, Dispossession and Democracy in Botswana (African Issues) James Currey, Oxford

Harvey, David 2003, 'The “New� Imperialism: Accumulation: Accumulation by Dispossession' in Leo Panitch and Colin Leys (eds) The New Imperial Challenge, Socialist Register 2004. London, Merlin

Hilson, G., Banchirigah, S.M., 2009 Are Alternative Livelihood Projects Alleviating Poverty in Mining Communities? Journal of Development Studies 45(2), 172-195.

Hilson, Gavin, (eds) 2007, Small-Scale Mining, Rural Subsistence and Poverty in West Africa, Warwickshire, Intermediate Technology Publications Ltd. Hilson, Gavin, N. Yakovleva and S.M. Banchirigah, 2007, 'To Move or Not to Move': Reflections on the Resettlement of Artisanal Miners in the Western Region of Ghana' African Affairs 106 (424), pp413-436

Hochschild, Adam 1998, King Leopold's Ghost: A Story of Greed, Terror and Heroism in Colonial Africa. Boston, Houghton Mifflin Lanning, Greg, 1979, Africa Undermined. Harmondsworth, Penquin

Luxemburg, Rosa 1968 [1923] The Accumulation of Capital. New York, Monthly Review Press

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McPhail, Kathryn 2000, 'How Oil, Gas and Mining Projects Can Contribute to Development' Finance and Development 37 (4) December Perelman, Michael, 2000, The Invention of Capitalism. Durham and London, Duke University Press

Rodney, Walter 1973, How Europe Underdeveloped Africa , BogleL'Ouverture Publications, London and Tanzanian Publishing House, DarEs-Salaam

Ross, Michael 1999 'The Political Economy of the Resource Curse' World Politics 15 January 297-322

World Bank 2000, World Development Indicators. Washington, World Bank

2009,http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDE CPROSPECTS/0,,contentMDK:21148472~menuPK:476941~pagePK:641 65401~piPK:64165026~theSitePK:476883,00.html (accessed 7 July 2009)

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Chapter 7

Organizing Small-Scale Artisanal Mining for Sustainable Livelihoods of Communities: The Regulator's Perspective Introduction

Ibrahim Bawa Minerals Commission, Accra, Ghana

Artisanal and small-scale mining (ASM), particularly of gold and diamonds, is practised in a number of rural communities in Ghana as a means of livelihood. Gold mining is predominant and has been carried out in Ghana for centuries. Such ASM has largely been practised at a subsistence level, featuring the use of rudimentary technologies such as pickaxes, shovels, hammers and chisels, metal mortars and pestles, with the resultant material washed into a concentrate and the gold recovered with mercury. The objective of this paper is to provide an overview of Ghana's ASM sector, and to provide a regulator's perspective on the challenges of formalizing its activities.

Historical Background

The mining of precious minerals on a small-scale is an age-old activity which was practised long before the Europeans arrived in Ghana in the fifteenth century. Historical evidence suggests that it was not carried out as a livelihood venture but largely as a supplement to farming and other occupations. In fact, it was not until the 1980s that ASM - the extraction of gold, in particular - gained prominence as a livelihood venture, when Ghana began experiencing 'gold rushes' in some mining communities like Prestea, Tarkwa, Enchi, and in the mid-1990s, Bolgatanga. Today, it is estimated that the sector employs over 500,000 people directly country-wide.

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By 1988, a significant amount of gold was being produced in Ghana, and since artisanal gold mining was largely illegal, there was no official market for it and so it was traded through a well-orchestrated black market in the sub-region. Diamonds, on the other hand, were well catered for through the 'Tributor System' operated by the Ghana Consolidated Diamonds Limited and later through the Diamond Digging License Scheme issued by the then Mines Department. The Diamond Marketing Board was responsible for the marketing of the diamonds. Industrial minerals such as sand, gravels, aggregate stones, salt and to a lesser extent, brown clay and kaoline are also mined on small scale, all of which impact significantly on the livelihoods of several rural communities.

Impacts of ASM on the Livelihoods of Communities

Over the years, ASM has impacted significantly, not only on host mining communities and mining camps, but also on a number of communities within their respective political districts. The impacts have been of a socio-economic, socio-cultural and environmental nature. Mining camps which surfaced during 'gold rushes' have turned nearby communities into bustling commercial towns with petty traders, barbering shops, food vendors, shopkeepers, transport owners and landlords all having a field day. The attraction of people to mining sites, however, at the same time, has led to an increase in social vices including prostitution, drug abuse and child labour in these areas. Moreover, with the influx of people from all over the country, there has been significant cultural dilution in camps and surrounding areas.

Since most activities in 'gold rush' areas are not formal, mining and processing are typically carried out indiscriminately, often with disastrous environmental consequences. Almost every inhabitant in these localities is affected either positively or negatively by the activities of the miners. In most cases, committees are set up to manage the work and control the large numbers of people who migrate to the area. Chiefs usually have a hand on the management, imposing deterring fines on culprits.

For example, in Achimfo near Enchi, in the 1980s and 1990s, dwellings were interspersed with active and abandoned pits. Here, the chief's palace served as the courtroom for settling cases emanating from the activities of

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artisanal small-scale miners. Indeed, at a point in time, Achimfo was called 'Small London' because of the beehive of activities that came alongside the 'gold rush'. These setups, however, are generally short-lived as ASM is for the most part improperly planned and managed and by extension, cannot be carried out sustainably. The three communities of Sewum, Amonia and Monchekrom near Enchi suddenly became very busy commercial centres following the discovery of gold deposit at Ajebrim in the vicinity.

Classrooms, kitchens and such structures became 'hotels' and there was immense pressure on local social amenities like toilets and potable water; food prices soared in the locality.

A similar situation occurred in Bolgatanga and Gbani. In 1994, both experienced a 'gold rush' of similar magnitude, during which thousands of people of all shades rushed to the area to engage in various livelihood ventures. Mining camps were established and this triggered a variety of income generating businesses, including transport, food vending and other associated livelihood ventures. The camps had names like 'Obuasi', 'Accra' and 'World Bank'. People abandoned their own livelihood occupations - farming, trading, artisanal works such as carpentry and even formal jobs like teaching - to take advantage of the gold boom. In a number of cases, however, entire families, including children, accompanied the migrants making them school dropouts. The spread of STDs and other communicable diseases were also obvious by-products of such mass movement of people.

With gold being a depletable asset, and more so as the reserves were not established and the mining planned, people who entered the activity experienced fluctuations in their earnings.

Organization of ASM in a Typical Ghanaian Community

In the informal setting, the landowner or the chief 'owns' the minerals and sells the mineralized land to prospective miners. Measurement is in 'poles' (acres) and the anticipated mineral content of the land determines its price.

It strictly follows the demand and supply principle: the higher the demand, the higher the price.

The miner then employs workers who work on contract based on the 'tributor system'. The miner generally buys all the minerals produced in

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the land and also sells it to a dealer who may be domiciled in the locality.

There are, in most cases, other big-time businessmen controlling it undercover. Committees are sometimes formed at the community level to assist the miner in the management. In 'gold-rush' areas, community leaders, with the approval of the chief, take control of the operations by forming committees to manage the operations.

A typical alluvial mining site at Dunkwa-on-Offin Sustainability and technical issues are generally not taken into consideration and, for that matter, people who initiate such livelihood ventures could soon become jobless, when faced with depletion or some technical obstacles (e.g., a high water table).

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A typical mining site at Wassa Dadieso

Formalizing ASM in Communities for Sustainable Livelihood

Recognizing the potential of ASM to create jobs both, direct mining as a means of livelihood and indirect beneficiaries through other forward and backward socio-economic linkages, the government formalized small-scale mining in 1989. This was based on the recommendations of a study undertaken by a consultancy, Mackay and Schnellmann Ltd., in 1987. A number of measures were put in place to enhance the contribution of the sub-sector to the economy of Ghana, as well as to ensure its sustainability.

To ensure optimal contribution of the sub-sector to the economy, certain measures/interventions were taken. These included: • Legalizing the hitherto illegal small-scale mining of gold through the Small Scale Gold Mining Law (PNDCL 218 of 1989)1 Minerals & Mining Act, 2006 (Act,703).

1

Recently incorporated into the Mining Act, 2006 (Act 703).

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• Other laws enacted in support of the regularization included the Mercury Law (PNDCL 217) and the Precious Minerals Marketing Corporation Law, PNDCL 219 (repealed).

• Establishment of seven district offices of the Minerals Commission to provide technical support to small-scale miners and prospective smallscale miners.

• Establishment of the Inspectorate Division of the Minerals Commission and the Environmental Protection Agency (EPA) are to assist in safety, health and environmental issues.2 • Provision of code of practice to guide the small-scale miners in their operations by the Chief Inspector of Mines (CIM).

Formal mining site at Abomosu

2

Formerly the Mines Department

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Formal mining site at Tontokrom • Continuous education and training of target groups, which include illegal miners, mining communities and prospective SSM on the need to acquire licenses and assist them technically to mine efficiently and to use appropriate mining techniques.

• Continuously setting aside prospective areas to be assessed by prospective small-scale miners.

• Geological investigation of blocked-out areas to assist small-scale miners in tracing ore deposits in their prospective concessions.

• Introduction of new appropriate technologies including mercury pollution abatement programs to improve mineral recovery and consequently to reduce poverty.

• Making ready markets available to small-scale miners to sell their products through the establishment of Precious Minerals Marketing Corporation (PMMC), Miramex, Atasay, etc. and their licensed buying agents.

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• Facilitating access to financial resources to SSM through funding from GTZ, World Bank, BGR and Ghana Government.3 • Assisting miners to form cooperatives and associations.

• Pilot reclamation of areas degraded through illegal mining.4 The Commission, through World Bank funding, successfully undertook a pilot reclamation and re-vegetation of degraded lands.

Concluding Remarks: Lessons Learned and Other Options

Sustainable livelihoods, through mining, would involve sustaining efficient mining as well as generating other non-mining sustainable socio-economic activities supported by mining. Mining livelihood sustainability would require geological data of acquired areas, use of appropriate technology, economic feasibility, sound environmental impact assessment, and remediation and legal compliance. Others are satellite industries to produce In line with its policy of creating jobs and wealth, especially for women and youth in the mining communities as well as the vulnerable, the government, under the Micro Finance and Small Loans Scheme, has kept sharp focus on programs like Youth in quarrying, Youth in Afforestation, and Rural Micro and Small Enterprise Scheme (RUMSEC). In order to deepen service outreach and to extend service to the grassroots communities and other target groups, a total amount of seven billion old cedis (07billion) was made available to the Ministry of Lands, Forestry and Mines (MLFM) in the 2007 budget to undertake its sector's component of the program. The introduction of the MLFM/MASLOC Fund for Alternative Livelihood Projects in the mining and forest-fringed communities and other ecologically sensitive areas is, therefore, to provide seed capital for members of such communities to establish alternative businesses/enterprises for sustainable livelihoods since they have been deprived of their lands and forests which hitherto served as the bedrock of their economic activities.

3

The reclaimed lands were: 95 hectares of land which had been degraded by small-scale sand winners at Ablorman near Amasaman; • 65 hectares of land degraded by small-scale gold miners at Nueng North Forest Reserve near Tarkwa; and • 45 hectares of land degraded by diamond diggers at Buadua in the Eastern Region.

It should be noted that whilst the lands at Ablorman and Nueng were rehabilitated and revegetated with indigenous plants, those of Buadua were used for citrus and oil palm cultivation.

4

•

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mining inputs, downstream processing of mining products, alternative livelihood system (such as transport business, petty trading, food vending, etc.), as well as willing financial institutions to support the industry.

These factors were overlooked during the inception of the Small-Scale Mining Project, but have been achieved to an appreciable extent through the interventions listed above. However, some lessons have been learned, and further measures are being taken to address the challenges through other options. Some critical reflections on what has happened to date include the following: 1. The regularization highlighting small-scale mining as a viable economic activity and the increase in commodity prices has led to an overwhelming increase in the numbers patronizing the industry. Thus, the available mineable land could not cope with the ever-increasing numbers of people entering the industry.

2. It was envisaged that large-scale exploration companies, through the compulsory shedding off of areas, could make areas amenable to small scale mining available, but this has not been done to a desirable extent.

3. Lack of funding to undertake systematic exploration of areas with prospects for ASM. Being a risky venture, the government, as well as donor agencies, have not been too willing to release funds for detailed exploration of areas earmarked for ASM activity.

4. Small-scale miners lack bankable feasibility reports to attract financial assistance from banks and other financial institutions.

5. Government assistance packages to small-scale miners are misconstrued as 'gifts', rather than loans to be repaid to enable assistance to others.

6. Equipment modules that were imported for ASM were too expensive for the average small-scale miner - especially the module for hard rock which included jaw crushers, Knelson concentrators and shaking tables.

Instead, simple equipment, such as the Chinese hammer mills ('Chang-Fa'), is preferred.

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7. Despite the mandatory acquisition of permits from EPA, with few exceptions (eg. E.K. Agyemang mining group at Npatuom), small-scale miners generally do not restore the land adequately enough to make the land useable, post-mining.

8. Illegal mining or galamsey still thrives throughout Ghana largely as a result of perceived difficulty in licensing procedure and lack of mineable lands.

9. Hammer mills, pickaxes, trommels and other tools are being fabricated locally but these compete with imported ones that are sometimes cheaper.

10. A processing plant as a custom mill was established at Bolgatanga but the miners could not produce enough ore to feed it and its operation has been stalled. This was expected to be a pilot one to be replicated at other suitable areas. Unfortunately, due to socio-cultural practices, Ghanaian small-scale miners prefer to operate individually with their own mining plants. Significant education and incentives would be needed to get the custom milling concept embraced.

11. One important lesson learned in organizing small-scale mining was the assumption that the operators would continue to work the surface and near-surface without the use of explosives. Experience has shown that as long as the ore is rich, miners would follow it to any depth, possibly blasting with explosives, with or without a permit. The law had to be revised in the Minerals and Mining Act, 2006 (Act, 703) to incorporate hard rock mining and blasting with explosives.

12. Despite educational campaigns for small-scale miners to form credible associations as well as a vibrant national one, there is currently no active strong one operating in the country. National Associations of Diamond Winners, Sand Winners, Gold Miners and several cooperatives in the gold, diamond and salt industry have all been formed.

Unfortunately, none of the said associations is very vibrant and influential. The problem appears to be lack of funds to mobilize operators and good leadership.

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13. Through training of small-scale miners on entrepreneurial skills, quite a number of operators have diversified their business ventures to include transport, hospitality industry, trading and farming.

14. Some large-scale miners and the government are promoting 'Alternative Livelihood Projects' at various communities.

Unfortunately, most rural youth prefer ASM to any other livelihood venture such as snail and grass cutter rearing, palm oil plantation, all of which have long gestation periods and insufficient remunerations.

15. Taxes and royalties are seldom paid by ASM, even though the law requires them to do so.

16. Law enforcement on unlicensed operators is not adequate as security agencies claim they lack sufficient numbers and logistics.

17. Similarly, regulatory agencies, particularly the Minerals Commission and Environmental Protection Agency, lack adequate human and financial resources.

The following tasks are being/should be undertaken to improve the performance of ASM in Ghana: • Government should continue to set aside areas for small-scale mining and also supplement the NREG program by releasing more funds to prospect the areas and establish bankable ore reserves; • More logistics should be provided for efficient extension service delivery system; • The officers themselves are being trained both locally and abroad to sharpen their skills as Trainer-of-Trainers; • Value addition or beneficiation should be encouraged through the establishment of facilities to produce gold and diamond jewelry; • Alternative Livelihood Projects should be extended to other mining communities, following the successful implementation of the Prestea Palm Oil Plantation initiative;

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• Hopefully, with the new mining regulations being compiled, miners will begin paying taxes and royalties so that these could be ploughed back into the communities to establish cottage industries for sustainable livelihood opportunities; • The government may consider undertaking EIA on designated lands; not only to improve upon the sustainable use of mineable lands, but also to lessen the burden on prospective small-scale miners in acquiring licenses.

It is evident from the foregoing that the Government of Ghnana has undertaken a number of interventions to ensure sustainable livelihoods through ASM in rural communities; both now and in the future.

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Chapter 8

Transforming Artisanal and Small-Scale Mining for the Sustainable Livelihoods of Communities: Lessons and Options Oliver P. Maponga1 Economic Commission for Africa, Southern Africa Office, Lusaka, Zambia

Introduction

About 40 per cent of Africa's population lives below the poverty datum line and derives livelihood mainly from a myriad of formal and informal economic activities, including artisanal and small-scale mining. The number of the continent's poor continues to increase in response to shrinking economic opportunities. The recent international financial crisis will further exacerbate Africa's economic challenges as investment inflows and the demand for commodities decline. Prices of solid minerals and petroleum products have declined by almost 75 per cent during the last half of 2008.

Mining is a key sector for many countries on the continent through its contribution to export revenues, GDP, employment and government tax revenues. For example, in Namibia (2007), mining contributed 12 per cent to GDP and 60 per cent to merchandise exports; in Botswana (2006), its share was 40 per cent of GDP and 88 per cent of export revenues; in Tanzania it was 3 per cent of GDP and 45 per cent of export; and in Zambia, the sector contributed 6 per cent to GDP and 73 per cent of exports. Export earnings from the sector in Ghana are similar: 34 per cent in 2006. Given their level of economic dependence on mining, many African countries can be 1

Views expressed are those of the author.

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described as 'mineral dependent' (see ECA, 2008; Davis and Tilton, 2005 for discussion on mineral dependency). However, with further beneficiation, the African minerals sector could play a much bigger role through linkages and multiplier effects.

Whilst medium and large-scale mining dominates the industry in terms of value and volume, a large and growing ASM sector exists on the continent. An estimated four million people are directly involved in artisanal and small-scale mining (ASM) in Africa. Further, the ASM sector is also estimated to provide support to the livelihoods of about twenty million people (Hilson and Maponga 2004). Despite the lack of census data on the size and extent of the sector, anecdotal evidence suggests that ASM has indeed grown in importance in sub-Saharan Africa in the last twenty years. Today, over 1.5 million people are involved in formal small-scale mining activities in the Southern African Development Community (SADC)2 alone (Dreschler, 2001). The sector is attractive as a refuge from poverty because of the low barriers to entry (generally low capital requirements, and ease of entry and exit) and the short gestation period (short price cycles for precious minerals).

The Harare Declaration of 1993 marked a key turning point in the growth of the sector on the continent. It produced important recommendations for the development of a formal ASM sector, emphasizing mainly policy and legislation requirements to support the growth of the sector. Since then, the United Nations, the World Bank and other key international development partners have assisted many countries in developing appropriate legislation and operating frameworks for the sector. In the majority of cases, actions have been directed at legalizing the sector, setting up of appropriate legal marketing channels, developing financing models and initiating technological support initiatives with the overall objective of assisting ASM to overcome challenges to sustainable mining. For example, the provision of technical support to artisanal and small-scale miners has been part of the overall reform approach in Ghana, South Africa, Namibia, Tanzania, Zambia and Zimbabwe.

SADC comprises Angola, Botswana, DRC, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, Swaziland, South Africa, Tanzania, Zambia and Zimbabwe 2

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The recent upsurge does not imply artisanal and small-scale mining is a new phenomenon on the continent. The ASM3 sector has, historically, played an important role in the economic transformation of the continent, although it has taken on a primarily-illegal character in most countries. Precolonial African modes of production included exploitation and trading in minerals, mainly precious and semi-precious stones. In the SADC, ASM has a long history and continues to grow as appropriate support mechanisms are put in place in most countries. Maponga (1997) reports that some of the subregion's large mines evolved from ASM activities (e.g. Banket Mine in Zimbabwe) and thus argues that this sector has a role to play as a precursor to large mines. Growth of the sector in recent times has been fuelled by a diverse range of factors but these have generally been centered on high poverty levels4 within large sections of the population. Maponga and Meck (2003), employ a push-and-pull framework to illustrate the growth of the sector in Zimbabwe and contend that the decline of the agricultural sector, caused by high input costs, intermittent droughts and economic contraction, a result of structural adjustments, were critical push factors. Focusing on gold, they also observe that a reasonably supportive operating environment and high gold prices in the early 1980s were equally important pull factors.5 Yet, their analysis shows growth during price troughs, indicating the importance of other factors in fuelling the gold rush. Banchirigah (2006) also attributes the growth of the sector in Ghana to, among other factors, economic structural adjustment programmes6 and rising levels of poverty (see also Dreschler, 2001, Aryee, 2003 for similar analyses). To support the link 3 The

discussion in this paper uses a broad definition of ASM to include both formal (legal) and informal (illegal) entities. Such an approach, though an over-aggregation, makes it possible to provide recommendations to address constraints faced by the whole sector. In the long run, the objective is to ensure that the sector is formalized.

This is general poverty including; low income levels and a poor asset base. Assets include; access and rights to land, human and capital endowments. Thus both absolute and relative poverty included in this definition.

4

See also Heemskerk (2001) for an analysis of the influence of international price booms on ASM in Suriname 5 6

These programmes caused transient poverty which fuelled ASM activities.

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between poverty and growth of the ASM sector, other analysts have observed an inverse relationship between a country's human development index and ASM but they caution that the effects of shocks on the sector's growth cannot be discounted (Hoadely and Limpitlaw, 2004).

Target minerals vary amongst miners but gold, diamonds and other coloured gemstones usually dominate the 'shopping' list due to their high returns and the 'ease' of their marketing. For example, in Angola, a rush for alluvial diamonds dominates; in Namibia, precious and semi-precious gemstones are the primary target; in Mozambique, it is gold; in Zambia, gemstones; in Malawi, limestone, building materials and gemstones; in Tanzania, gold and gemstones, in the DRC, coltan,7 diamonds, copper, cobalt and gold; and in Zimbabwe, gold, emerald, diamond, tantalite and chromite. The Zimbabwean cooperative chromite sector grew out of a deliberate government policy at the height of low-base metal prices in the mid 1980s. Similarly, Namibia's small-scale tin mining also evolved as a result of government support after the demise of the large-scale operations due to viability problems. Industrial minerals such as sands and gravels are another exception in the sub-region, where the demand from construction sector and also the ease of extraction has resulted in the growth of the small-scale extraction of these products. The West African experience in terms of target minerals mirrors that of Southern Africa, with gold and diamonds being the principal focus in the ASM sector. Analysts have argued that the search for quick returns and the ease of processing and marketing influence target minerals, and this reinforces the view that the sector is indeed poverty- driven, as miners search for quick riches and some of them retreat to their former forms of livelihood. This often gives the sector a transitory and temporary character, where miners expect to overcome poverty from seasonal mining.

Yet, seasonal mining is not the optimal way of using resources.

However, the complementarity of small-scale mining and agriculture highlighted in studies in Malawi, Zimbabwe and Ghana (see Labonne,

Columbite and tantalite demand have been fuelled by the mobile phone industry during the last ten years because the use of the mobile phones has increased dramatically and tantalite is used in the manufacture of capacitors

7

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2003; Banchirigah, 2006 and Maponga and Meck, 2003) shows the important linkages between the two sectors, albeit on a small scale. In these analyses, farm workers and communal farmers engage in small-scale mining during the off-season as a temporary activity to supplement income. The seasonal earnings from mining provide a resource base for agricultural inputs when the rainy season commences. George-Kumirai (2002) reports changes in the numbers of panners along rivers during different times of the farming season and links this to the need to supplement resources.

In their study, Maconachie and Binns (2007) observe the important contribution which alluvial diamond mining makes to the economy of Sierra Leone through its links with farming. They contend that these links could play a key role in rejuvenating market-oriented food production and hence exports, and provide the much-needed impetus for post-war rural development. They emphasize that meaningful rural development can be achieved through strategies based on a detailed understanding of the nature of the inter-locking livelihoods in the agricultural and mining sectors.

Whether transitory or permanent, the potential contribution of the sector as a source of livelihood and contributor to regional and national economic growth and development has never been doubted. It possesses the potential to engender multiplier effects at local levels through for example, the complementarity between ASM and agriculture discussed earlier which demonstrates the role a vibrant sector can play in rural development. Miners are able to purchase seed, fertilizer and labour services from income earned through mineral sales.

If these localized linkages can be magnified by a vibrant ASM, immense potential to transform African economies and also strengthen the continent's renaissance exists. Empirical evidence has shown the exploitation of mineral resources at whatever level, large or small, can contribute to economic growth and development. African countries have to realize that minerals are not a curse as other countries have successfully used the sector as a springboard for modernization on a smaller scale. Australia, Canada, Norway and the USA have all used the mining industry as a catalyst for wealth creation and broad-based economic development. Although ASM's role as a development form has never been empirically tested, the micro-level experiences have in various studies shown the positive impacts, especially through linkages and complementarities with agriculture.

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Despite this potential, ASM has generally failed to evolve into sustainable productive industry, and some analysts regard it as a stop-gap measure with limited prospects for sustainability and call for people to abandon their work in the sector. Similarly, some analysts consider the sector wasteful as the benefits are outweighed by costs and therefore, ASM is not worth supporting (Hoadley and Limpitlaw, 2004). This paper argues that despite these misgivings and the sector's poor record on economic, social and environmental sustainability, ASM can make a meaningful contribution to African economies, especially at the local level. Its transformation into viable business entities will open opportunities for sustainable livelihoods and the promotion of complimentary activities and the emergence of a sector that contributes to regional economic growth and development, supports the development of micro-clusters and the development and strengthening of forward and backward linkages. This transition can only occur if technological, financial and legal constraints faced by the sector are overcome. This will enable it to play a social welfare function as it possesses low barriers to entry and can absorb large amounts of both skilled and unskilled labour.

Such attributes will provide communities with opportunities for survival through its cash-generating function and an economic safety net.

After reviewing the sector's challenges, possible approaches which could be used to strengthen and transform the sector into a sustainable alternative source of livelihood for communities using experiences from Southern Africa are presented in this paper. Whilst recognizing the need for an effective management scheme for the mining and marketing of minerals, for example, through a community-based, integrated management system, the paper argues that despite the enclave nature of mining in general and the subsistence nature of ASM as bottlenecks to the sector's contribution to regional economic development, appropriate policy support could elevate the sector's role in regional development and overall contribution to poverty reduction. The paper invokes the sustainable livelihood approach to develop a case for transforming the sector for the overall benefit of communities. In conclusion, the paper advocates for a holistic approach to facilitate the evolution of ASM into sustainable sources of livelihoods for communities and argues for their incorporation into rural development programmes.

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The ASM Vicious Circle of Poverty

The effect of high precious metal prices on the international market is often not reflected in the livelihoods of small-scale miners. They continue to remain in a self-reinforcing poverty loop characterized by poor standards of living, low income, a high prevalence of disease, social dysfunction and environmental degradation. Figure 4 depicts the ASM poverty loop, identifying the constraints faced by miners in their quest to derive livelihoods from the sector.

Figure 4: ASM and the Perpetual Poverty Cycle Large numbers of miners with limited assets and entitlements chasing an unknown resource base

Low income and inability to save and invest Low recoveries Low productivity

Poor knowledge of geology Inappropriate technology (Figure 2)

Environmental degradation, health and safety hazards, social dysfunction Source: Adapted from UNDP, 1999

Although other analysts have argued that this view is overly simplistic and rather generalized, it does provide insight into the character of the sector, especially the reasons why ASM remain poor whilst medium to largescale operators exploiting similar resources declare profits. The sector usually features large numbers of poor people converging at an area in response to discoveries of rich mineralized zones - for example, the recovery of gold nugget diamond. A 'rush' mentality characterizes the growth of the ASM

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sector worldwide. In Southern Africa, for example, episodes of gold, diamond, gemstones and tantalite rushes have occurred in DRC, Namibia, Tanzania, Zambia and Zimbabwe. The target deposits vary from high-grade and easy-to-access minerals to marginal ones which are usually mined-out within short periods. As shown in Figure 4, a poor knowledge of geological potential and rudimentary technology lead to low productivity and low recoveries and, with a poorly developed marketing information system, miners obtain prices often lower than those obtaining internationally. Poor technology contributes to environmental degradation, disregard for health and safety issues, and generally poor standards of living. Low levels of income (due to low prices usually paid by middlemen) perpetuate the cycle of poverty even during periods of high prices. Thus, small-scale miners find themselves in a poverty trap where they are barely able to sustain subsistence and fail to build social and physical capital for future generations.

Picture 5: Typical ASM Technology and Working Conditions in Pegmatite Mining8

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These characteristics have led others to question the rationale of supporting the sector and others have advocated for programs to ensure that miners leave the sector for better life-sustaining opportunities. Yet, this paper argues that despite its current shortcomings, the sector has potential to be sustainable, especially if developed as part of the national strategy focusing on its role in rural development so that entry into the sector is driven by opportunity from an efficient and profitable activity and exit should be a voluntary decision for those who cannot make a livelihood.

Studies have shown that the optimal operation of small-scale miners is constrained by a lack of skills (technical, business and management) and limited access to mineral deposits, capital and markets. Hence, ASM activities result in negative socio-economic impacts evident in the inefficient, unsafe and environmentally unfriendly operations. The commonly used sustainability framework in Figure 5 depicts the complex nature of the requirements for complete sustainability. By definition, sustainability is about living legally within limits, understanding the interactions among the economy, society and environment, and about equitable distribution of resources and opportunities. For complete sustainability, ASM has to be internally balanced and has to be in sync in relation to the operating environment. It has to be for the equitable and sustainable use of environmental and natural resources for the benefit of current and future generations.

For economic sustainability, miners have to earn enough to be able to meet their daily needs, save for future use, purchase equipment, invest in further exploration and mining and take care of life-sustaining requirements. Similarly, the social system has to be functional with guaranteed respect for human rights, gender equality, elimination of child labour, healthy workforce and society, safe working environment and a knowledgeable society (high levels of education). From an ecological perspective, the sector has to manage the environment by attending to challenges such as deforestation, siltation, backfilling of mined-out areas, ensuring that minedout areas have alternative economic uses such as recreation, for example.

Sustainability is assured when all three facets are satisfied and the governance system ensures enjoyment of all the benefits; miners have property 8

Kamativi, Zimbabwe

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rights and can trade and enter into contracts involving their claims without restrictions, if it simultaneously satisfies economic prosperity conditions, maintains environmental quality and promotes social equity and operates within the confines of the law. The approach calls for participatory and multi-stakeholder approaches to dealing with development issues.

Figure 5: The Sustainability Framework

Using this framework, it is, therefore, not difficult to understand why there is serious resentment about the sector, as it fails to satisfy a majority of these conditions - hence, the need for targeted intervention to promote sustainability. Picture 6(a) shows one of the social vices of ASM, child labour. Picture 6(b) shows a stamp mill in use on pegmatite.

The ASM sector has to be transformed into an activity that produces value whilst allowing for the generation of more value, within generations and through generations. In its current form, it is not but has the potential to economically empower communities and enrich regions (ECA, 2008). What is needed is to break the cycle of poverty or at least reduce the impact of some of the constraints to sustainability so that a prosperous community

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Picture 6: Processing Ore Using a Stamp Mill9

Picture 6 (a) Gold Ore

Picture 6 (b) Pegmatites

emerges. The sustainable livelihoods approach (SLA), with its focus on wealth creation, is a potential transformation approach which African countries could employ. It is defined as a way of approaching development that incorporates all aspects of human livelihoods and the means whereby people obtain them. Livelihood comprises the capabilities, activities, entitlements and assets (physical, human and financial) required of a means of living. A sustainable livelihood is one which can cope with and recover from stress and shocks and maintain or enhance its capabilities both now and in the future, whilst not undermining the natural resource base. Central to the SLA is poverty, which we have defined as the principal driver of the growth of the sector in the majority of cases. By focusing on poverty, this approach develops a key link with the attainment of the Millennium Development Goals (MDGs), the first being the 'eradication of poverty'.

Sustainable livelihoods, therefore, is about: Meaningful work, meeting basic needs, health, security, gender equality and living in an equitable and just society (Singh and Lawrence, 1997). In this description, assets include natural; resources, knowledge, skills and employment opportunities; activities are things people do to earn a living and entitlements are those things that people rely on because of legal and common property rights. As a way of understanding the poverty around communities, the approach also helps 9

Gold Ore in Chiweshe area and Pegmatites at Kamativi, Zimbabwe

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develop strategies to overcome it. The guiding principles of the SLA include: Being people-centered, holistic, dynamic, building on strengths, promotion of micro-links, encouragement of broad partnerships and aiming at sustainability help in developing strategies to transform the ASM sector.

As a development approach which encompasses tenets of community development, integrated rural development, and employment and incomegenerating schemes used to promote sustainable development, the SLA further emphasizes strengths and assets in evaluating sustainability. For the ASM sector, the approach seeks to identify sources of strength and the assets which the miners have which can enable them to be sustainable. In accordance with this approach, the ASM sector, in its current configuration, is an unsustainable livelihood for poor communities. It has to be elevated to a sustainable livelihood if the poverty it seeks to protect communities from is to be eliminated. Sustainability, poverty reduction and the attainment of MDGs should be the key tenets in the promotion of ASM in line with the SLA. We have to seek to answer the question: how can the extraction of resources contribute to providing meaningful work, meeting basic needs, health, security, gender equality and enable a just and equitable society to emerge? How can ASM result in wealth creation within communities? How can social, human, physical, natural and financial capital be built from ASM strengths and assets?

The Transformation Process - A Holistic Approach

A linear schematic representation of the possible route to the potential transformation of the sector is shown as Figure 6. Yet, the process itself is much more complex and as the discussion here will show, the outcomes of interventions are not always as intended. The transition could be smooth and could follow gradual stages such as: From artisanal to small-scale mining; from precious minerals to industrial minerals; from ASM to other business ventures (e.g. farming), and from ASM to medium and large-scale operation, but 'leap-frogging' cannot be discounted.

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Figure 6: Transforming ASM for Sustainable Livelihood of Communities

Source: Adapted from CASM, 2003

Any transformative approach designed to address the challenges of the sector should be holistic, consultative and involve all stakeholders in order to effectively tackle the underlying constraints identified in Figure 4. Using the neoclassical approach to economic growth represented in Figure 6, the need to build the various facets of capital in order to facilitate growth and the sustainability of mining communities becomes easy to appreciate. If we

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assume ownership of mineral resources10 by ASM, natural capital already exists, and what is needed is human capital (skills, education), financial capital (investment), technological capital and social capital. These forms of capital interact to generate/stimulate economic growth and economic sustainability in the sector. Conversely, if they do not exist, growth is constrained and so is economic sustainability. Although this model does not guarantee social and environmental sustainability, it allows for the pursuit of these other goals using the economic benefits from the sector.

Figure 7: Capital, Growth and Sustainability in ASM

Source: Adapted from Gylfason, 2007

For ASM communities, the route to economic growth and hence, sustainable livelihoods, includes the input and participation of the following stakeholders: mining communities, government (national, local and regional levels), community-based organizations (CBOs) non-governmental organizations (NGOs), the private sector and regional and international development partners (ECA, 2002). The roles of each of these stakeholders are examined in turn in this section.

10 Defined broadly to include the resource base of unknown size since ASM do not have knowledge to delineate reserves

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The Role of Governments

The government has to develop a conducive operating environment for ASM. It should develop well-integrated policies for the sector to contribute towards alleviating poverty, enhancing integrated rural development, avoiding or minimizing adverse environmental, health and safety effects, achieving a productive business climate and stabilizing government revenue.

Since minerals are vested in the state and their extraction has to take place according to the laws of the land, a legal environment allowing access to these resources, therefore, is an important pre-requisite for sustainability.

(i)

Legal and Regulatory Environment

One of the major challenges to sustainability of the sector revolves around legal recognition of ASM as a legitimate economic activity. Legality influences also impact on the ability to transfer the resource owned by smallscale miners. It is about access to land and security of user rights. Even in countries where the sector has a long history, the legal and regulatory framework for the sector remains riddled with difficulties despite recognition of the sector's importance. Apart from appropriate legislation, government structures should have departments for the ASM; such a structure should ideally be decentralized. The ability to legally access mineralized lands is important. Models of reserving surveyed/delineated mineralized lands in particular areas for ASM have been used in some countries on the continent (for example, Ghana, Mozambique and Tanzania). A system of reservation protects ASM from unnecessary competition from larger companies and also ensures that small but prospective areas are not left idle for speculative purposes by the large mining companies. Ideally, the mining licences for ASM in reserved areas should include obligations to develop the deposits within specific time frames so as to avoid sterilization of the resources.

The legal environment has to provide clarity on ownership regulations, community consultation, environmental and social responsibilities and any empowerment requirements. The tradability of ASM rights has to be made clear so that miners can enter into possible partnerships with private investors. Simplified application procedures, decentralized mineral administration systems and flexible registration policies are key requirements for

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the sector to flourish. Studies have shown that artisanal and small-scale miners find the registration systems in most countries a deterrent to formalization and thus remain illegal; this further minimizes their chances to access assistance or enter into partnerships (joint ventures) with other investors (see Maponga 1997; Traore 1994). A formalized ASM sector would, in the medium to long term, contribute to the national tax base, in turn, leading to more resources being available for further assistance to the sector.

However, one of the major challenges to achieving sustainability in the ASM sector relates to environmental management, especially use and disposal of process chemicals and tailings, and the rehabilitation of mined-out areas. Requirements for the preparation of detailed EIAs and EMPs are considered complex and not within the capacity of artisanal and small-scale miners. To overcome these challenges and ensure that compliance is enshrined in the work of the sector, flexible, appropriate and enforceable laws and regulations have to be in place. This will indeed enhance environmental sustainability.

(ii)

Finance

As shown in Figure 6, low incomes perpetuate the poverty loop since no surpluses are generated, thus resulting in limited investment in exploration and expansion. Low incomes emanate from illegality leading to inability to access formal markets, poor knowledge of market dynamics, long distance from formal markets, and the use of middlemen who often offer lower prices. These financial constraints remain a major drawback to the efficient operation of the sector, as they limit further investment. Given the nature of the sector (high-risk, lack of collateral, unknown resource base), traditional loan-financing models involving commercial banks, other lending institutions and other international agencies are not easily accessible without some form of state guarantee. Miners are, in most cases, unable to submit bankable projects to potential investors and often lack track record and collateral, key requirements for accessing commercial loans. Intervention by the government as part of an overall development strategy, through the provision of soft-finance for working capital (mine development and for equipment purchase), thus becomes a route to tackling the sector's capital constraints. However, the challenge in operationalizing this strategy often

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relates to the source of these resources from the state's perspective.

Royalties and additional profit taxes are a potential source of funding for such initiatives. These resources are generally used to finance governmentsponsored mineral exploration programs. A proportion could be committed to a revolving fund or mineral development fund11 for providing soft-loans to ASM through a micro-credit scheme managed through a dedicated agency. Other models of government-led financing have included direct budgeting for loans for the sector as part of the national budget, and given the importance of the sector's contribution to national income through taxes and foreign exchange earnings, this should not be too difficult to achieve.

Further, a financing model initially supported by a government can facilitate the emergence of local junior mining companies, which can facilitate the transformation of ASM into medium-scale enterprises. Local junior mining companies will also be able to enter into meaningful and sustainable joint venture arrangements with foreign investors to facilitate the development of larger projects. This will also contribute to meaningful empowerment as indigenes would own means of production A sound financial resource base will also enable the sector to migrate up the value chain through the development of small-scale processing industries, including jewelry, from gold, cutting and polishing (lapidary) from gemstones, tiles and slabs from dimension stone, and bricks and ceramics from clay and sand. The small-scale exploitation of industrial minerals presents more opportunities for the development of supply linkages, which could contribute to local economic development compared with precious minerals. The key is the provision of seed funding. In this regard, strategies used successfully to prop up small-scale agriculture in the sub-region through the establishment of dedicated banks could be adopted for the ASM sector with the government assuming the role of risk-taker. The government could put up attractive schemes to mop up resources from the local financial sector, including the informal sector, to prop up ASM.

11 For example, an ASM fund along the limes of Community Funds now common in the min-

erals industry could be established as an investment vehicle.

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(iii) Skills Training

The skills base of ASM is generally poor: miners often lack exploration, mineral identification, mining, processing and marketing skills and information about markets. This perpetuates the poverty cycle as it impacts on productivity and returns from the sector. Technical and numeracy skills should be provided through short courses or train-trainer programs, which have been used successfully in the agricultural sector in many countries. Easily accessible and affordable extension services could be used to assist the miners in acquiring the necessary assistance and skills.

Targeted training programs for ASM are a common feature of development strategies employed in most countries in SADC: in South Africa, through Mintek, Zimbabwe (School of Mines), Tanzania (SEAMIC), and Namibia through the Small Scale Mining Section in the Ministry of Mines and the Namibian Institute of Technology and other providers. The training includes geology, mineral exploration, business skills, mineral identification, mineral markets and marketing, legal and regulatory requirements.

South Africa developed social and labour plan requirements, which incorporate training for miners and communities as part of corporate social responsibility. The Zimbabwe School of Mines training programs at technician level in metallurgy, mineral processing, geology, exploration and mineral economics draw their students from Botswana, Namibia and Zimbabwe. However, ECA (2008), whilst supporting training and general assistance to the sector, calls for profiling of the ASM sector in order to determine the exact skills required by miners before developing programs.

This will facilitate the design of targeted training programs and hence help build human and social capital and contribute to sustainable livelihoods.

The general shortage of skills in the minerals industry region-wide, even for large mining companies, means that the challenge is even much bigger for ASM and hence resources have to be directed at boosting the skills base.

A deeper collaborative regional strategy which would allow for standardization of qualifications and the sharing of capacities, is needed.

(iv) Technical Assistance

The ability to access to appropriate exploration, mining processing and environmental technology is important to enhance the sector's productivity

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and efficiency. Typical processing technology in the sector is shown in Figure 7. Appropriate mining equipment is expensive and in most countries, it is imported. This exerts pressure on artisanal and small-scale miners, as they lack financial resources to purchase the equipment. Larger operators have the financial resources to benefit from generous tax concessions (duty rebate schemes) when they import equipment whilst ASM operators are unable to do so.

Countries such as Zimbabwe and Ghana have used equipment hire schemes financed by the State to overcome the equipment 'gap, providing both basic technology (wheelbarrows, hand shovels) and higher level equipment (diggers, mechanical shovels, compressors). Supporting the growth of fabrication plants to either develop substitute technology or develop other appropriate technologies could be a solution to some of these technical problems. Other technical assistance programs have been provided to miners through donor-funded projects, including the Intermediate Technology Development Group (ITDG) programs in Zimbabwe, EU Mining Diversification Programme in Zambia, and the Global Environmental Facility (GEF) programmes in Tanzania and Zimbabwe on mercury abatement technologies. However, sustainability beyond the project life has always been a problem, as many of these donor projects do not build capacity for sustenance beyond the project life.

Given the growth of the sector in the sub-region, a long-term regional approach is required to overcome the technical constraints. A larger market makes the construction of technology plants (equipment centers) for fabricating some of these technologies cheaper than countries going it alone.

South Africa, Zambia and Zimbabwe have built local small-scale manufacturing industries which could be consolidated to become regional in nature and serve the SADC market by sharing competencies.

(v)

Marketing and Market Intelligence

Another key component of sustainable livelihoods has to do with the ability to cope with short-term stress or long-term change such as a sudden decline in prices of commodities. Thus, an ASM strategy which ensures optimal returns during price peaks is imperative and this should be complemented with planning, budgeting and investment skills. A training regime

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which equips miners with business skills is important. A marketing strategy which ensures that miners receive a fair price for their output, generates surpluses and allows for the building of capital reserves for investment in other economic activities is key to the survival of the sector. The sector needs assistance to generate surpluses by addressing pricing and marketing challenges. Without licenses, miners are unable to sell their output through the official channels and have to rely on middlemen who buy at suboptimal prices. Other disincentives of the current marketing systems, especially for precious minerals include: Delays in receiving payments and the lower prices paid through the official system.12 Despite the immense challenges associated with mobile buying centres, some countries have employed this strategy, especially for gold, diamonds and tantalite (Zimbabwe, Namibia, for example). This helps overcome the pricing challenges faced by the miners and diminishes the predatory strategy of the monopolistic middlemen. However, the transactions costs involved, such as distribution of miners and the security of the product, are challenges which this strategy faces.

Another strategy has involved the consolidation of products (output) from the miners by a government agency and then the sourcing of markets for larger volumes. This has been applied in Zimbabwe and Namibia, for tantalite products. However, because of the nature of production in the ASM sector, this approach is not amenable to long-term contracts, as output is not guaranteed and, therefore, cannot take advantage of hedging. In Zambia and Tanzania, for example, calls for the establishment of gemstone marketing centres have been made to ensure that miners are able to obtain fair prices.

Other analysts have advocated for regional minerals exchanges as a strategy to assist the ASM sector.

(vi) ASM as part of National Development Strategy: Integrated Rural Development and Clusters

Medium and large-scale mines have made a significant contribution to the development of infrastructure, roads, rail and power connectivity and the 12

Occurs due to differences in the official and unofficial exchange rates

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development of clusters. With proper support, a vibrant and commerciallydriven ASM sector can also contribute to such development. Although most analyses of the sector's contribution to development have focused on precious and semi-precious minerals, small-scale industrial mineral exploitation has the potential to foster much greater linkages. Small-scale agro-mineral development is a labour-intensive activity which can reduce agricultural costs significantly by extracting and developing agro-mineral deposits closer to farming sites. This enhances agricultural productivity (improves soil fertility) and improves the sustainability of farmers, and creates conditions for improved livelihoods in the community as employment opportunities are created and additional income-generating opportunities emerge.

Access to fertilizer will increase food production and contribute to food security and poverty alleviation. Opportunities for cluster development and linkages are larger in small-scale industrial minerals development than in the precious minerals sector. Other sources of linkages from small-scale agro-mineral operations include opportunities for local entrepreneurs in providing crushing or grinding services, for example. The experience of smallscale industrial mineral extraction in China (bauxite) and Indonesia (tin) has shown the huge forward and backward linkages which can emerge within the mining areas.

Cluster-based growth strategies can be developed and implemented around a permanent ASM sector. Such strategies have been developed in various nations/regions to address a host of issues, including cyclical changes in economic conditions, increased global competition, population growth, low-growth economies, unemployment, and making the shift from comparative to competitive advantage. Clustering helps create competitive advantage around mineral resources as the sector becomes part of a broader national development process and is to some extent insulated from commodity-specific cyclical developments.

As a concentration of expertise among closely-linked industries and companies in which extensive investment in specialized factor of production, a cluster can catalyse a growth trajectory. As noted in Porter (1990), the agglomeration of producers, customers and competitors, whether based on geographical proximity or linked by complementary expertise, promotes efficiency and increases specialization. A cluster-based development strategy can generate numerous economic benefits, at both the macro and micro

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levels. On a larger scale, clusters can generate additional national revenues and foreign exchange earnings through increased exports, produce global competitiveness, enhance productivity, and result in a higher standard of living within the resident population, create and generate sustainable competitive advantages. The competitive advantages can be through the development of upstream and downstream industries; increasing the level of competitive inputs (such as services, machinery and equipment); increasing the level of employment in all business activities related to the cluster; increasing the rate and exports of value-added products and services; attracting foreign investment; increasing inter-firm co-operation; ensuring linkages and interactions are high-quality and beneficial; generating new start-up companies; increasing trade performance; and generating higher corporate profits.

However, the overall economic impact of a specific mining project, particularly at the local level, is highly dependent on the fullness and depth of the 'cluster' of activities that form and agglomerate around it, for the 'indirect' effects are strongly associated with the degree of 'cluster' maturity. Each direct spin-off from the initial industry provides the impetus for further employment spin-offs either in supporting industries and enterprises or the service sector. The indirect effects of cluster development are: Fiscal contribution of the plant to local tax revenues, value added originating in inputs, equipment, services and engineering produced by domestic suppliers to the plant('upstream' and 'sidestream' industries), the value added in the domestic processing of minerals and metals, in products made from such metals and minerals and the transportation and marketing of the same ('downstream' industries) and value added in local improvements and innovations through integration with technological consultants, suppliers and producers.

Each indirect effect assists in broadening the local employment base and enhancing the skills in the local population.

To enhance linkages and promote the development of viable clusters, the ASM should be part of development plans, integrated rural development (IRD), regional development plans and local economic development strategies. This will help to nurture and strengthen linkages. The small-scale industrial minerals sector provides the easiest source of linkages to local economic development. Any policies aimed at transforming ASM into a sustainable livelihood should encompass integrated rural development emphasizing the link between various facets of the rural economy.

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Modernization of the ASM sector should place at its core programs to strengthen economic, social and environmental objectives, including interaction with the agricultural sector. Integrated rural development, as a bottom-up model of rural development, empowers communities and emphasizes sustainability, and places greater emphasis on the potential to foster opportunities for growth by mobilizing opportunities for growth and exploiting linkages between sectors. Instead of ASM evolving as an island whose survival depends on mining only, IRD allows for a broad-based development strategy which would include growth of rural community businesses involved in trading activities that meet local needs. Micro-clusters around ASM activities can develop as long as integrated planning between sectors and within sectors is the guiding principle. The involvement of communities and local authorities is a key to the success of integrated rural development programs, especially those based where projects are located. A community-driven development strategy which incorporates ASM is needed for sustainability.

Thus, by capitalizing on linkages arising in the production chain, there are opportunities in which the vast mineral wealth in Africa can be employed to ensure maximum industrial development throughout the continent.

(vii) ASM and Africa-Wide Development Initiatives

The African Union Vision of Spatial Development Initiatives (SDI) and Development Corridors provide a framework which could possibly incorporate ASM as part of a wider development approach on the continent.

Development Corridors are expected to generate economic growth through the mobilization of the private sector to empower communities via employment creation. Corridor development is in line with economic integration on the continent premised on greater developmental benefits to member states by the collective use of development policies. Most of the major projects in the corridors are based on a partnership between the public and private sectors, and are set to provide opportunities for participation in sectors such as agriculture, mining, tourism, environment, forestry, infrastructure and ports.

Although the specific focus is on development corridors which are usually along existing transport networks in order to unlock the inherent economic

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potential that exists in these corridors, mainly in mining, but also in agriculture, power generation and tourism, all sources of resources are potential catchment areas. The ASM sector could be a micro-node for the development corridors or they could be within the catchment area of the corridors.

It could also feature in development zones linked to the corridors, and hence would benefit from the benefits generated by the economic activity in the corridors.

(viii) ASM and Poverty Reduction Strategies

The ASM sector should be included in national development strategies, especially through the National Poverty Reduction Strategy Paper (PRSP) process. This is one of the key recommendations that came out of the Yaounde Vision, adopted during a joint ECA/UNDESA Seminar on 'Artisanal and Small Scale Mining in Africa', which provided a comprehensive framework for the development of a sustainable ASM sector on the African continent. The framework, premised on the internationally-accepted view that ASM is mainly poverty driven, advocates for the incorporation of the sector into PRSPs as twin-pronged medium to long-term strategy to alleviate poverty and also transform the sector into a provider of sustainable livelihoods. Many governments on the continent have developed PRSPdemonstrating commitments, at least at the policy level, signifying a desire to reduce poverty through the resources sector. The sector provides a possible route and, therefore, should be a key part of the strategy, especially in those countries which have a significant ASM sector. The promotion of alterative livelihood projects within mining communities can enhance sustainability as linkages can be forged and micro-clusters could emerge.

Yet, despite their appeal, the first generation of PRSPs fails to provide strategies on how revenues from mining will be used to alleviate poverty.

Further, they fail to clearly establish the link between investment in the sector and poverty reduction (ECA, 2008). The assumption of a linear relationship between the sector's growth and poverty alleviation has also been criticized by analysts of this approach as there is no guarantee that this will occur without a clearly articulated program. Further, in the PRSP machinery, no priority is given to pro-poor policies in the utilization of windfalls from the sector. Whilst these misgivings applied to the first generation of

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PRSPs, the expectation is that as countries draft new policies, cognizance is taken of the need to develop focused pro-poor policies and programs to be supported by revenues from the sector.

The issue, therefore, is not about developing a PRSP which discusses ASM, but rather that promotion of the sector is part of the government's propoor strategies. Governments should commit financial resources towards assisting the sector to overcome its constraints and also have in place a program that ensures that benefits from the sector find their way back into helping the sector enhance efficiency. The overall ASM strategy in the PRSP should also address child labour and gender issues in the sector - key issues that must be addressed in order to develop a complete vision of sustainability.

These actions by government will contribute towards the evolution of a sustainable sector, one that contributes to sustainable livelihoods, poverty reduction and the attainment of the MDGs. A proactive government approach will have positive demonstration effects on other actors. It is easier to support a legally-recognized activity than one which is illegal. As the experiences in Southern African will demonstrate, policy is in itself not a panacea, its implementation, monitoring and the ability to incorporate new issues are key factors.

The Private Sector

The private sector, either mining companies or lending institutions, has traditionally shied away from the ASM sector. Yet, its contribution through linkages, collaboration and the provision of financial assistance can facilitate the growth and prosperity of the ASM sector. A symbiotic co-existence is indeed possible with a proper operating environment.

(i)

Financial Institutions

For the purely commercial financial institutions, the high commercial, geological and technical risks inherent in the sector have been the source of resentment to lend. As noted earlier, the sector is usually unable to provide the security required in commercial lending, and thus fails to satisfy the minimum lending requirements. This is further compounded by the fact that the minerals industry is still a virgin area for the lending sector in Africa.

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There is a need to develop strategies towards changing the attitude of the financial sector towards mining in general, and ASM in particular. The banks often lack the skills to evaluate mining prospects, especially the fact that at times, the gestation period is rather long but positive returns will emerge. Deficiencies on the part of ASM in project preparation skills also compound this problem, as projects are poorly prepared and hence fail to attract funding. Whereas large companies have resources to engage professionals to produce feasibility and pre-feasibility reports, small-scale miners are unable to fund such upfront expenses. There are many deserving ASM projects which the lending institutions could participate in. National Development Banks could open a special window for the ASM sector.

(ii)

Mining Companies

Although often regarded as hostile competitors, mining companies and small-scale miners can co-exist in a mutually beneficial relationship. A legal ASM sector can amicably co-exist with large mining companies, if the latter purchases ore and provides laboratory services (at a cost), R&D for developing appropriate technology (smaller plants). Further, whereas the community is usually the source of labour (unskilled, semi-skilled and skilled), mining companies can be a source of skills upgrade. The ASM sector can also economically work on marginal deposits on claims owned by mining companies or even work on tailings, provided contracts are developed. Examples of cooperative type-arrangements between ASM and largescale miners for the purchase of inputs such as mercury and in-skills training have been cited in the literature (Maponga and Ngorima, 2002). In such cases, ASM would benefit from the discounts offered for large purchases and also from the training offered by the large mining companies. Maponga and Ngorima (2002) argue that in the long-run, a properly trained ASM sector will appreciate the benefits of proper mining and processing which will lead to better recoveries and higher levels of income. However, it is important to appreciate that striking this relationship is difficult, as these entities are indeed in some 'competition', though not that fierce as large operations have several advantages. AngloGold Ashanti and De Beers13 report of cooperative arrangements with ASM in Tanzania, and argue that the programs are designed as part of their corporate social responsibility.

13

Through the Mwadui Community Diamond Partnership, a multi-stakeholder initiative.

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Civil Society Organizations

The full participation of communities is important for the success of the sustainable livelihoods approach. Civil society organizations and NGOs are important in ensuring that communities are indeed part of the process of designing strategies to enhance sustainability in the sector. Dealing with issues such as gender, social impacts of mining, resettlement, revenue distribution challenges and child labour in ASM requires the input of CBOs and NGOs who can work at the community level in assisting communities and empowering them with the required skills to deal with these challenges.

Gender configurations within mining areas can impact on overall sustainability. Issues such as unequal access to resources for both men and women can impact on the distribution of the benefits of ASM, within a family, a community and a region. Thus, civil society organizations can play an important role in advocacy towards equal legal access to mineral resources and equal access to the proceeds from mineral sales. However, as noted by Maponga and Meck (2003), the way the ASM sector is configured, where women play a subsidiary role, impacts households, especially in communities where women do not legally own claims or mines. These are the issues that need to be addressed with lobbying and advocacy. The civil society movement played an important part in the formation of Women Miners Associations in the sub-region, and continues to support these organizations through financial assistance.

Many NGOs and CBOs have also contributed to the development of appropriate mining and processing technology, and have facilitated the diffusion of technology developed in other areas in many countries on the continent (for example, Ghana, Zimbabwe, Zambia, Tanzania). Equipment such as mercury retorts were initially promoted through the efforts of these organizations. These organizations have been vehicles for technology adaptation in the ASM sector in Africa.

Financial assistance programs have also been promoted by NGOs, such as the European Union-funded Mining Diversification programme in Zambia and the Austrian-funded Chrome Fund in Zimbabwe. In the case of the former, however, access by ASM proved difficult because it was administered through the banking system and hence carried the same stringent conditions and thereby limited its access. However, training programs under

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this project were accessible. In the case of the latter, there were problems with repayment, as the project life was too short to allow miners to earn enough to repay loans.

The preceding section has outlined some of the strategic approaches that could transform ASM into sustainable activity, and has emphasized the need for a holistic approach. In addition to addressing technical issues impacting on sustainability, the holistic approach has to address many of the social issues plaguing the sector. One of the main challenges threatening the survival of the sector is the HIV/AIDS pandemic, which plagues small-scale mining communities. There is a need for the government, the private sector, civil society and target communities to work together in designing preventative and care methods.

In the following section, some experiences taken to improve the sustainability of ASM in Southern Africa are reviewed.

Experiences from Southern Africa

For the SADC region, assistance to ASM is clearly articulated in Article 7 of the SADC Protocol on Mining, which commits states to: promoting policies to encourage and assist small-scale mining, facilitate the development of small-scale mining through, amongst others, the provision of technical services, establishment of marketing facilities, including exhibitions and establishment of mineral exchanges and encourage provision of training, institutional and financial support for the ASM sector in the region. The SADC mining sector strategic plan further emphasizes the importance of the sector with an overall objective around the development of a commercially viable small-scale mining sector. The priorities of the strategic plan include; development of a regional strategy to promote and regulate ASM, development of support mechanisms, promotion of ASM and development of appropriate ASM regulations.

The framework for harmonizing policies in the mining sector approved

by SADC Ministers responsible for mining in 2006 outlines strategies to be adopted by member states, including formalizing and supporting ASM. The framework reiterates the importance of ASM as a tool for economic development, a route towards the empowerment of communities and indigenous people, and an avenue for poverty alleviation. In light of this, the framework

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identifies the creation of a conducive environment to nurture the sector and the provision of the necessary technical, human and financial support, as critical elements for the sector's growth.

Specifically, the framework encourages member states to: • Reposition ASM policies and legislation with a view to alleviating poverty; • Develop ASM policies and legislation that address constraints faced by the sector with focus on improved access to land, financing, marketing, technology and skills development, especially entrepreneurial; • Develop, adopt and enforce appropriate and uniform health, safety and environmental standards for the sector; and • Integrate ASM into rural development programs.

To date, the general approach taken to provide assistance to the sector has included government-supported programs implemented alongside the efforts of NGOs and international cooperating partners. All countries in the sub-region have dedicated sections/departments within mining ministries for the ASM sector. Further, all countries have supported the formation of associations representing the sector, including separate associations for women miners. Associations are an important source of social capital for a sector that has to continue fighting for recognition as a legitimate economic entity. In terms of evolution into sustainable entities, a legally-recognized association will be important to further the aspirations of miners.

In Mozambique, for example, the last decade has witnessed improvement in the operating environment in the ASM sector, through, for example, the establishment of a laboratory of gemology in Nampula to provide support to the evaluation of gemstones and the training of miners on mining and section of gemstones; the enactment of a mining law (Law 14/2002, of June 2002), which provides for a more simplified form of registering for artisanal mining; and the demarcation of reserved mining areas for ASM. Further, as an empowerment strategy, the local trade in gemstones in the mine site is only restricted to national operators. Fiscal incentives on activities under mining certificate (small-scale mining) and mining pass (artisanal mining) are exempted from paying royalties, and reduced fees for the obtaining of

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respective licences and permits apply. Whilst activities under mining certificate are subject to the payment of surface tax, the same does not apply to the small-scale and artisanal mining activities where a reduced tax has been set.

Simplified registration of artisanal miners enables government to collect statistical information for use in designing support programs towards ASM. In Namibia, support for small-scale tin mining following the demise of large-scale operations, establishment of small-scale mining division in the ministry, and provision of mobile analytical and marketing services for the sector demonstrate the government's commitment to assisting the sector.

The establishment of a revolving fund from Sysmin seed funding has been a key support strategy for the sector. To overcome challenges encountered

by ASM in satisfying environmental regulations in terms of preparing elaborate EIAs, a simplified environmental contract has been developed for the sector and a simpler claim registration procedure for the sector has been developed. Creation of the National Small Scale Miners Assistance Centre in 1997 has been important in assisting the sector address its challenges.

The South African model of support for ASM has focused on business skills training, support of small-scale mineral beneficiation and value-addition projects, and development of appropriate technologies for the sector.

The Department of Minerals and Energy (DME) and organizations such as Mintek and the Council for Geosciences, for example, are the main agencies that provide assistance to the ASM sector. For example, Mintek's Small Scale Mining and Beneficiation Division has undertaken work on promoting appropriate technology and value-addition in the sector, and provides appropriate training. The development of the mercury-fee Igoli process for gold recovery is the result of appropriate technology development work by Mintek. Further, government support led to the formation of the South African Small-Scale Mining Chamber, a first in the sub-region. The decentralization of service points by DME to regional centres has facilitated access to services for the ASM sector.

Zimbabwe's support to the ASM sector has included government assistance as well as input from other sectors. This has entailed the establishment of gold price-support schemes, development of mobile gold buying units, promulgation of regulations facilitating the formation of mining cooperatives (chromite), launch of mining equipment hire schemes, promulgation of regulations in 1991 legalizing gold panning, development of

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frameworks for custom milling centres and provision of loans for working capital. In addition to these state-funded programs, other stakeholders have provided assistance. Examples include: The establishment of a gold milling and training centre (the Shamva Mining Centre); the loans and equipment provided under the Austrian Chrome Fund; and initiatives carried out under the auspices of the Global Environmental Facility-funded programme on mercury abatement technologies and capacity building for local equipment suppliers.

These regional experiences demonstrate the commitment of governments to assist the sector and employ it as a vehicle for economic development and empowerment. But apart from South Africa, which has continued to fund these schemes and has focused on value-addition, most countries in the sub-region continue to struggle to maintain funding for the sector. What is also clear from this analysis is that as long as the support to the sector continues to depend on government and donor goodwill, transformation into sustainable entities will remain elusive in the majority of cases. The support schemes have to graduate into sustainable revolving funds. Instead of a wholesale approach type of assistance, targeted schemes focusing on a few deserving projects should be used to provide a positive demonstration effect for the rest of the sector.

A major weakness of these regional strategies has been the limited attention on social and environmental issues; key aspects of sustainability.

Gender-sensitive programs are not clearly articulated (although in some policies, women are classified under previously disadvantaged groups and are supposed to receive preferential treatment), environmental challenges from the sector do not have 'special' policy space given the challenges associated with developing comprehensive EIAs for ASM (except for Namibia which has developed an environmental contract for the ASM), and specific programs to eliminate child labour have not been articulated. As shown in Figure 5, whilst legislation contributes to sustainability, it is not a panacea.

Conclusions

The paper has argued that, despite its widespread nature, ASM, in its current form, can only serve as an alternative source of livelihood for distressed

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communities but is not a sustainable form of livelihood due to technical, social and economic limitations. However, with proper support, it has the potential to contribute to the sustainable livelihoods of communities. A properly structured holistic approach involving all stakeholders is needed to effect this change. Governments' commitments to the growth of the sector and poverty alleviation are key requirements; other stakeholders can then rally around a pro-active government policy for ASM. In this regard, the critical facilitator to the growth of the sector is legal recognition, which brings with it property rights and ownership, and further opens possibilities to enter into joint ventures, access funding, training and technical assistance.

The paper has emphasized the role of governance in ensuring sustainable economic growth and improvement in the livelihood of mining communities and surrounding environs through developing systems which capture all income generated by the sector and channel them to local development activities. Through instruments of change such as development of regional policies, capacity building (government capacity to deliver services, skills for the miners in all activities in the mining cycle, etc.), provision of financial resources (micro-credit) and development of relevant implementation plans for regional development initiatives, governments can, indeed, launch the sector onto a path of sustainability. An improvement in prices paid to miners through government intervention, is one way to minimize losses.

Flexible buying and selling systems which ensure prompt payment are needed. International concern over the fair trade of minerals from the ASM sector has resulted in organizations such as Communities and Small Scale Mining supporting initiatives for the possible certification of artisanallymined minerals as a tool for stimulating sustainable development in mining communities. Mineral certification (certification of origin and certification of ethical quality) is motivated by the need to continually improve the economic, social and environmental sustainability of the mineral supply chain, as operators compete for 'ethical' buyers. This will ensure that the exploitative middle-men are eliminated, and that miners earn highest possible returns. Governments on the African continent should support such initiatives to enhance sustainability of the ASM sector.

The challenges of poor technology could be overcome through the provision of mobile extension services to improve mining, processing technology, marketing and environmental management to enhance efficiency. A

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regional approach to developing appropriate technology has to be adopted, as this will create a market big enough to sustain such a business. Similar regional approaches could be adopted for training in the ASM sector.

For sustainability at the local level, the emphasis should be on developing systems to address the unbalanced relationship between beneficiaries of mining and the risk and cost bearers which further illustrates the importance of a holistic approach. Whereas the local communities bear the full costs of environmental degradation, destruction of local social fabric and norms by migrant workers, non-locals reap the positive social and economic benefits from mining.

The paper has argued that although ASM may not fit perfectly into the box of sustainability as defined in the literature, it nevertheless leverages development in rural areas and generates wealth and is thus an important part of the social structure. The sector has to be supported to enhance and magnify its role in sustaining livelihoods through proper integration into development programs in mining areas. The key to the sustainability of ASM communities is a consultative process involving all stakeholders: government, the private sector and the local and international development community, so as to foster working relationships, build capacities and thereby improve opportunities for sustainable development.

Since African countries have embraced ASM as an important sector in poverty alleviation and economic empowerment, it is important that the policy space for the success of these entities be flexible enough to nurture growth and sustainability. If the continent was able to abandon the resource nationalism of the 1970s and 1980s and embrace liberal regimes to accommodate foreign investors in the 1990s, there is no reason why flexible regimes cannot be created to accommodate indigenous entrepreneurs to facilitate ASM growth. The recent international financial crisis, which is anticipated to result in reduced investment flows to developing nations, including those of Africa, presents an opportunity to pursue an inward-looking development approach which focuses on small- and medium-scale industries, including ASM, as engines for growth to ensure sustainability and the development of linkages and prosperity through value-addition.

14 Most countries are currently re-examining at the liberal policies for the mining sector and their impact on sustainable development as the investment boom has not translated into meaningful development

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Selected References

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Banchirigah, S.M. (2008) Challenges to Eradicating Illegal Mining in Ghana: A Perspective from the Grassroots. Resources Policy 33 (29-38)

Banchirigah, S.M. (2006) Have Reforms Fuelled the Expansion of Artisanal Mining: Evidence from Sub-Saharan Africa. Resources Policy 31(3), 165167 CASM (2008) Certification and Artisanal and Small-scale Mining: An Emerging Opportunity for Sustainable Development, April 2008

Davis, G.A. and Tilton, J.E. (2005) The Resource Curse. Natural Resources Forum 29, 233-242.

ECA (2002) Compendium on Best Practices in Small Scale Mining in Africa, ECA/RCID/OO3/02 ECA (2008) Sustainable Development Report on Africa: Managing LandBased Resources for Sustainable Development

George-Kumirai, J. (2002) “An Assessment of Factors that Constrain the Implementation of S.I. 275 of 1991 (Mining (Alluvial Gold) Public Streams Regulations), by Rural District Councils in Zimbabwe: The Case of Insiza Rural District Council”. Unpublished Master of Policy Studies Dissertation, University of Zimbabwe, Harare. 2002, 58 pages.

Gylfason, T. (2007) The International Economics of Natural Resources Growth. Minerals and Energy: Raw Materials Group 22(1-2), pp7-17

Heemskerk, M. (2001) “Do International Commodity Prices Drive Natural Resource Booms? An Empirical Analysis of Small-scale Gold Mining in Suriname”. Ecological Economics, 39: 2001, 295-308.

Hoadley, M. and Limpitlaw, D. (2004) The Artisanal and Small-scale Mining Sector and Sustainable Livelihoods, Paper presented at the Mintek Small Scale Mining Conference, Johannesburg, South Africa, September, Proceedings 1-9

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Maconachie, R. and Binns, T. (2007) "Farming Miners" or "Mining Farmers"?: Diamond Mining and Rural Development in Post-Conflict Sierra Leone Journal of Rural Studies, 23.3 p367-380 Jul

Maponga, O. (1997) Small-scale Mining and the Environment: The Case of Alluvial Gold Panning and Chromite Mining in Ghose, A.K. Mining on a Small and Medium Scale: A Global Perspective. Intermediate Technology Publications: London, 185-211.

Maponga, O. and Ngorima, C. (2003) Overcoming Environmental Problems in the Gold Panning Sector Through Legislation, and Education: the Zimbabwean Experience. Journal of Cleaner Production, 11(2), 147-157

Maponga, O. and Meck, M.L. (2003) Illegal Artisanal Gold Panning in Zimbabwe- A Study of Challenges to Sustainability Along the Mazowe River in Hilson, Gavin M. (ed) The Socio-Economic Impacts of Small-scale Mining in Developing Countries: A.A. Balkema Publishers. ISBN 978 90 5809 615 9

Traore, P.A. (1994) Constraints on Small-Scale Mining in Africa. Natural Resources Forum 18(3), 207-12.

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