Home 54° Across Africa Natural resources, Africa’s undoing: The way forward

Natural resources, Africa’s undoing: The way forward

Have we ever wondered why after it is all said and done, we still get to have this conversation about Africa being a huge source of natural resources? We have heard this statement made at some point about how Africa is rich in resources but still poor and how there is a lot of corruption going on in the trading of this natural resources.

But to be honest, Africa is actually blessed with a rich bounty of natural resources. Imagine the continent holding around 30% of the world’s known mineral reserves.

Alright! Alright! We know all this!

Or if you don’t, now you know.

But for the sake of fulfilling all righteousness, here is an excerpt of an article written in 2015 by Tom Lebert, senior international programme officer (Resources & Conflict) at War on Want.

Africa is blessed with a rich bounty of natural resources. The continent holds around 30% of the world’s known mineral reserves. These include cobalt, uranium, diamonds and gold, as well as significant oil and gas reserves.

Given this natural wealth, it comes as no surprise that with the tripling of global mineral and oil prices in the past decade, mining has exploded on the African continent.

Over the period 2000 to 2008 resource extraction contributed more that 30 percent of Africa’s GDP, while the annual flow of foreign direct investment into Africa increased from $9 billion to $62 billion (most of this into extractive industries).

However, despite being so richly endowed, and despite the mining boom of the past decade, Africa has drawn little benefit from this mineral wealth and remains one the poorest continents on the globe, with almost fifty per cent of the population living on less than $1.25 per day.

Exploitation and corruption

So, why is it that a continent with such vast potential wealth can remain so poor? It’s in large part down to ‘Illicit financial flows’. The illegal movements of money or capital from one country to another.

The exploitation of mineral resources has all too often led to corruption, and a large proportion of the continent’s resources and revenues benefitting local and foreign elites rather than the general population.

Trade mispricing (and in particular transfer pricing and trade misinvoicing) is the most common way of transferring illicit funds abroad.

Through trade mispricing companies seek to maximise profits artificially through maximising expenses in high tax jurisdictions and maximising revenue and income in low tax jurisdictions. This enables corporations to minimise tax payments illegally and transfer the funds abroad.

Such illicit flows undermine social development and stymy inclusive economic growth. Instead of investing resource revenues into improving infrastructure, health and education, political elites, often in collusion with mining companies, have siphoned off proceeds from the continent’s mineral and oil wealth – lining their own pockets, to the detriment of ordinary Africans.

Tom Lebert, 2015

Tom also wrote about the mining industry. He had this to say

“The mining industry was the biggest culprit and the bulk of the loss was attributed to transfer pricing – where parts of the same company trade with each other at prices determined by themselves – and to the over-reporting of costs and under-reporting of production.”

Using Zambia and South Africa as an example, overly-generous tax incentives provided to companies and  illegal capital flight through trade-misinvoicing (a means to evade tax) is rife in the ores and metals sector are 2 major situations that compound the corruption going on. Massive smuggling, underreporting and tax evasion in the sector also.

This tweet by Hopewell Chin’ono says a lot about this.

What does this mean for the next generation of leaders?

It is important there is a lot of transparency in the mining process of these natural resources. This is not to rule out the greed that exist in the dealings of these natural resources, which leads to holding on to opaque and unclear processes. Greed must be dealt with before taking a position of authority. The overwhelming desire to get all that will make you comfortable is a ticking time-bomb for greed to rear its ugly head. As young Africans looking to occupy positions of authority in the continent, it is important we begin to develop ourselves in becoming transparent, honest and truthful. A generation not fazed by money, no matter its amount. That way, we are free to make decisions for the betterment of the countries we lead.

In conclusion, it is difficult to manage what you have in excess especially when at the back of our minds, we know that there would never be a shortage of it. The impact of the wealth from Natural resources should be felt in the country where it is mined. There is a reason it is called ‘Mine” right? It is the country’s natural resource to explore and the world should be a better place for it, not the other way round.



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