The FPC and the Open University's International Development and Innovation, Knowledge and Development Centres, in partnership with Lovells, hosted a one-day conference on Friday 21 November which explored the impact of commodities on development in Africa and China. The event sought to illuminate the complex and intricate relationships that constitute the ever-evolving engagement between the People's Republic of China and the continent of Africa. Energy, minerals and agricultural commodities provided a unique and topical framework through which to explore emerging Africa-China relations.

If you would like to receive a copy of the Conference report when it is published in early 2009, please send your details by email to: events@fpc.org.uk.

Useful links:

• OU Asian Drivers Programme: http://asiandrivers.open.ac.uk
• OU Development Policy and Practice: http://dpp.open.ac.uk
• ESRC OU/Durham project - The politics of Chinese Engagement with African Development: www.geography.dur.ac.uk/projects/china-africa/Home/tabid/2486/Default.aspx
• OU International Development Centre - http://idc.open.ac.uk

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SESSION SUMMARIES

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Plenary 3: Minerals & Shared Growth in Africa

Session Summary - Main Issues:

1. Should Mining MNCs be development agents?

2. Will China face the same obstacles in Africa as those faced by Western mining firms?

3. The Developmental State in Africa is an important concept, and should be explored as a strategy for commodities to deliver on growth and development.

4. China presents an opportunity for growth but African leadership must rise to the occasion to benefit from the commodity boom.

The session was chaired by Dr. Nkosana Moyo, and the speakers were Edward Bickham, John Kemp and Prof Raymond Bush.

Dr. Nkosana Moyo in his opening remarks stressed on the fact that one cannot understand Africa's relationship with China without understanding Africa's relationship with the West. Africa is being considered an 'adolescent' and its relationship with China is considered by some as harmful. However to properly analyse this relationship it must be put into a historical context. Most of all, it is up to Africa itself to gain advantage from the competitive situation it finds itself, arising from the traditional relationship with the west and the increasing engagement by China.

Edward Bickham, CEO of Anglo American

Main themes:

• Mining agencies can and do act as agents of development.
• China has much to offer Africa, but there are downsides to this.

Opening remarks highlighted:

• China's relationship with Africa comes with less political baggage since it was not involved in colonial rule, nor was it actively engaging in the Cold War days.
• China will be a significant player in the mineral sector in the coming years.

China offers to Africa:

• Significant donations in terms of aid.
• An alternative model for development
• Significant economic links and trade opportunities
• A source of significant FDI
• Because of Chinese concerns for the supply security of resources, the Go Out policy makes Africa potentially its resource basket
• Fast and cost effective delivery on infrastructure and investment projects

China's current position in Africa:

• Anglo American estimates 43 investment projects by China in the mineral sector in Africa:

Gabon Iron Ore $3 billion investment

DRC Copper/Cobalt $3 billion in mineral-related infrastructure

Zambia Copper

Zimbabwe

• Investments in:

Natural resources

Transport and infrastructure

Structural investment, mainly in power

Dealing with the Resource Curse:

Anglo American as part of the International Council on Mining and Metals (ICMM) is participating in multi stake holder projects to recognise and side step the issues that arise from being a mineral dependent economy. The following are success factors in avoiding the resource curse:

• stable macroeconomic environment
• good governance and building institutional capacity
• mineral sector related legislation to encourage supportive inward investment
• Effective company and government agreements to support local schemes

Mining companies as development actors:

• Through core business and related activities to benefit the communities affected by the mine itself.
• As mining is capital intensive, the number of jobs generated is low, so use alternative livelihood approach, entrepreneur development for locals and partnerships.
• Act as advisors for host countries in fields of Aid, Trade and FDI, and in negotiations with the World Bank, IMF and other governments

There are both upsides and downsides to Chinese investment in Africa:

• Upsides include increased FDI, successful development model and increasing competition for resources. Fast and cost effective delivery of investment projects
• On the downside it reduces the leverage for western conditionalities
• Chinese inability to handle social and environment challenges
• Tied aid to Chinese operators and labour
• Non interference policy may reinforce government failures and may actually lead to being indifferent

Conclusion: the surge in Chinese investment is in itself interesting, but also provides an opportunity for Africa. However it has pitfalls and is not a one-way ticket to success.

John Kemp, Energy Columnist

Main theme:

• China is likely to face the same problems as others in the African mining sector

Opening remarks highlighted:

• commodity boom is demand led and therefore should provide markets for Africa's commodity exports
• extractive industry is capital intensive, and most developing country governments cannot raise the capital for such operations
• the challenge is to structure mineral development to bring in the finance

6 Basic Issues for China in Africa:

1. Contracting with Sovereign Countries:

• Risk of negotiation
• High sunk costs
• Sovereign governments not always bound by local legislation, but have some limitations in practice
• Subsuming mineral/mining contract by company in larger treaty between home and host state. Currently more available to Chinese companies than others, but such treaties have proved imperfect in the past for western companies

2. Equity Distribution:

• Problems with deciding what is a fair share of profits over a commodity price cycle

3. Instability and Corruption:

• Power rests with individuals rather than institutions, leading to corruption and political instability. China will face these, the same as western companies have

4. Local Community Benefits:

• Usually profits/royalty is returned to the national treasury rather than local communities around the mine
• Western companies have tried to ensure that some benefits flow to the local community. Also because of home pressures, these companies are much more considerate of the environmental and social costs of their operations
• Such home pressures do not exist in China, and therefore there is no pressure on Chinese mining companies to take into consideration environmental and social costs of their activity

5. Labour:

• Poor labour relations, based on low wages, safety and other issues
• Such conflicts will also remain in Chinese operations, especially when they bring in their own labour force

6. Commodities are not the root to riches:

• commodity prices can and will decrease, as will the terms of trade
• Exaggerated fiscal shifts lead to macroeconomic problems, therefore do not rely on commodities in the long run

Conclusions:

• Most countries try and diversify away from commodities, Africa should do the same
• Africa can gain from its commodities, but do not expect too much from Africa's resource base and China's involvement in it

Prof Raymond Bush, Leeds University

Main Themes:

Western mining firms have not always delivered development, especially for the local communities in and around mines. China's engagement will do better only by more proactive African governments.

Opening remarks:

• Competition from China allows the West to rethink its engagement with Africa
• Africa is in crisis not because its marginal to the world but because of the way in which it was incorporated within the world
• China offers the time and the opportunity for change in Africa but must learn from previous western mining companies engagement with Africa
• New resource economies are now very different from the resource economies of the 1960s

Previous Mining Firm Engagement:

• In the mining communities engaged with western companies, the development can be characterised as abjection; where they have been thrust out of development rather than included in it
• New entrants may expose what previous mining companies have done in/to communities
• Before 2000, mining companies did not act responsibly towards
• Local communities
• Displaced communities
• Leaving a hole in the ground after the mine is shut down

Possible Pessimism:

• Many companies have gotten away with too much for too long
• Substantial increase in mining firm profits, estimated rise of 1,400% from 2002 to 2006
• Taxation has been regressive and government revenues have actually fallen
• Extroversion of the national economy in providing for the needs of a foreign economy

Possible Solutions:

• Codes of responsibility need expanding
• Bring the state back in land, human resources and environmental issues
• African Mining Vision 2050 by Economic Commission of Africa is positive step
• Re develop and promote the idea of a Developmental State
• Optimise on Chinese FDI

Conclusion:

Issues for the future -

• Social contract for mining
• Paying attention to artisanal mining
• African states be developmental states and yet be able to remain FDI friendly

Question and Answer Session:

1. Slightly disingenuous to compare mining companies to development actors; why will there going into Africa be helpful for development?

2. Differences in the nature of mining related investments between the Chinese and westerns MNCs

3. China less embroiled in the cold war geo politics, but still involved

4. Different kind of capacity building required to deal with Chinese and western companies

5. To what extent do African governments actually have bargaining power in negations with MNCs?

Edward Bickham

• MNCs must be more responsible as development agents towards mining communities, so that they gain consent the next time and place of investment mining.
• One major difference between western and Chinese mining firms is the leverage the latter has in terms of support from state to state treaties and agreements.
• Chinese will eventually learn from their experiences in Africa and there will be a convergence of behaviour in due course with western companies.
• Mining companies did have good profits after 2002, but this comes at the end of bad profits from 1990 to 2002.
• Tax returns are currently the same value as that paid to shareholder as dividends, so we are returning revenue to the host country.
• MNCs cannot afford to take a paternalistic attitude towards development in the local communities, there must be greater understanding of issues involved and the impact of our activities.

Prof Raymond Bush

• Relationship between state, company and local community must work towards the maximum benefit of the community.
• Issue relates to the balance of economic power which is currently asymmetrical and needs to be addressed.
• Real leadership is required on the part of African leaders, through contestation and struggle.
• 'Stabilisation schemes' within contracts need to be renegotiated.

John Kemp

• MNCs are not development agents.
• In order for commodities to work for development, there has to be a constructive relationship between all actors.
• Royalty fees need to generate revenue that will flow down to the local communities.
• Mining is a deep cyclical industry, and profits ebb and flow.
• Priority must be given to fiscal terms in mining contracts.

Dr. Nkosana Moyo - Concluding Remarks

• There is a skills mismatch between mining firms and African communities
• African leaders are poor and corrupt and therefore mining firms must be more responsible
• 'The problem is ours fellow Africans', we must be responsible protecting our interests.

Working Group 3:

Mineral Commodities and Development; Friend or Foe?

Alastair Fraser gave a detailed presentation on the Chinese investment in the Chambishi Copper mine in Zambia. The project has not been without controversy and local conflict.

Four Key Points:

1. China picks up investment where other western firms do not go.

2. Exploitation of locals is there by both western and Chinese firms, although of different natures.

3. The response by the population to Chinese investment matters, even if the State is compliant the local community refused to be pushed down.

4. Chinese firms can and do learn from their experiences, the challenge however lies in effective state regulation.

Perceptions around Chinese Investors?

1. Gap between perceived Chinese presence and actual presence.

2. The Chinese are not doing anything previous MNCs have not already done.

3. Notions of racial hierarchy still exist within local communities, and therefore Chinese are not considered 'better' while a western boss may be.

4. Mining agreements between the Chinese and state are the same as those by other MNCs.

5. China did take up a dead mine and create jobs, however conflict with local labour unions still exists.

6. Losses in the local election results forced the ruling party/government to more strictly enforce agreements and regulations on mining firms.

7. Chinese showing some acceptance of local requirements and vice versa. The opposition party PF has now changed their stance to 'we need China, just not their labour'.

Question and Answer Session:

1. How to best manage a nexus between the state, the local community and the mining company. Democracy is often ignored, but it is an important tool to politicise issues and gain results.

2. The place of 'stabilization scheme' within contracts, how it is mutually beneficial if written up correctly.

3. The difference in operations of Oil and Minerals, where the former has more of an enclave nature than the latter, makes it important to consider the role of mining MNCs as development agents.

Download 'Going for Growth' - Invitation (190 kilobyte PDF; need help viewing PDFs?)