Linking Infrastructure to Natural Linking Infrastructure to Natural Resources Development: A Double Resources Development: A Double

Sustainable Development Gain Sustainable Development Gain

by Antonio M. A. Pedroby Antonio M. A. PedroUNECA, Addis Ababa, EthiopiaUNECA, Addis Ababa, Ethiopia

Key premises: The virtual cycleKey premises: The virtual cycle

Africa is richly endowed with natural resources, but most are located in remote areas

Many African countries are natural resources dependent Natural resources sector would continue to be enclaves if

multiplier effects are not engendered: Infrastructure facilitates linkages

Addressing Africa’s infrastructure needs requires substantial investments

Natural resources rents provide opportunities to expand Africa’s infrastructure

Key premises: The virtual cycle (2)Key premises: The virtual cycle (2)

Natural resources rents can bridge the gap, but improving their governance and management, as well as investing the rents smartly (including in infrastructure), are key pre-requisites to lasting development

Linking natural resources development to infrastructure development (SDIs) can make infrastructure projects more bankable

Factor flows in a regional space are important for infrastructure development

Key premises: The virtual cycle (3)Key premises: The virtual cycle (3)

Harmonization of policies, laws, regulations, standards and codes vital for factor flows

Infrastructure development: Key to unlocking Africa’s trade potential and realizing regional integration

Diversification and value addition of natural resources important for intra-African trade

But, the challenges are manyBut, the challenges are many

Many natural resources exploited as enclavesLack of bankable infrastructure projectsLack of awareness about the linkages between NRD

and infrastructureThe NR Challenges:irreversibility; creation;

investment; the distribution; governance and macro-economic; and the capacity.

Unreliable, inefficient and expensive infrastructure services

Restricted access to infrastructure services

But, the challenges are many (2)But, the challenges are many (2)

Inadequate and non-integrated physical infrastructure

High transaction costs which impact on Africa’s competitiveness

Trade barriers which limit extent of value addition and diversification

However, opportunities are not fewHowever, opportunities are not few

High commodity pricesRekindled interest on AfricaSecond scramble for Africa natural resourcesChina and India “commanding” the ball gameSSATP/MLTSF/AICDS/ICAAfrica Partnership ForumInfrastructure Master PlanAlmaty Programme for Land-Locked Countries

However, opportunities are not few However, opportunities are not few (2)(2)

Way Forward on TransportAfrica Water Vision 2025Africa Energy Vision 2030 (in development with

AUC)AU Decisions (e.g. Sirte Declaration on Water)

A word about the challenges policy A word about the challenges policy makers face to manage natural makers face to manage natural

resourcesresources

The irreversibility challengeThe irreversibility challenge

How to balance the relative costs of access and the choices/preferences of the present relative to the future?

What set of policies should be put in place to ensure sustainable exploitation of mineral resources in a manner that is inter-generational equitable?

How to manage resource stress (1-Malthusians: Scarcity leads to war; the honey pot of abundant resources may be a focus for greed and elicits a scramble of gold diggers. 2-Cornucopians: Scarcity leads to adaptation. 3-Anti-globalists: Scarcity is the consequence of the structural violence of an inequitable global system) Jeroen Warner 2004

The creation challengeThe creation challenge

How to create and sustain mineral wealth that is consistent with social preferences for environmental quality and social and cultural considerations?

How to ensure an efficient, equitable and predictable legal, regulatory and fiscal regime that encourages mineral creation?

The investment challengeThe investment challenge

Mineral wealth is a transitory wealth. How to transform it into permanent wealth?

How to create a stream of wealth that outlasts finite mineral resources?

How much ought to be saved and how much should be invested?

Who should invest?In what?Where?

The distribution challengeThe distribution challenge

How to share benefits from mining equitably (e.g. local vs national)?

What is fair? -Aristotle and Proportionality (Outcomes are allocated in

proportion to each party’s contribution)

-Jeremy Bentham and Utilitarianism (Outcomes are distributed so that the distribution creates the greatest good for the greatest number)

-John Rawls and his Theory of justice (Outcomes should be such that the least well-off group in society be made

as well off as possible)

The distribution challenge (2)The distribution challenge (2)

What form should the allocation take?What are the eligibility criteria? Who has the

highest priority?How to reconcile conflicting interests (e.g. The 1999

Nigerian 13% Derivation Principle vs the Nigerian Supreme Court decision on ownership of

offshore oil)?

The macro-economic and The macro-economic and governance challengegovernance challenge

How to address externalities such as declining and unstable commodity prices?

How to address the Dutch disease? How to enhance the public interest in wealth

conservatism? How to avoid rent seeking and corruption?

The capacity challengeThe capacity challenge

How to balance aspirational goals and the reality?What set of policies, laws, standards, guidelines

should countries formulate which are congruent with the capacity to enforce them?

How to bridge the capacity gap?

What should inform policy What should inform policy responses?responses?

Development paradigms: They shiftDevelopment paradigms: They shift

Nationalizations in the 1970’sReforms in the late 1980’s and 90’s21st Century: The search for a new social contract

for mining

Stage of the development in a Stage of the development in a minerals cycleminerals cycle

Nascent mineral economy: Requires mineral investment flow, terms might be generous

Youthful mineral economy: Rapid mineral expansion, Dutch Disease, strengthen governance systems

Early-Mature: Slowdown of mineral output, promote sectoral diversification

Late-mature: Decline in mineral output, boost skills acquisition

Policy responses to a minerals-Policy responses to a minerals-driven cycle driven cycle (Richard Auty)(Richard Auty)

Stage Character Macro effects Policy response

Nascent Mineral investment flow Exchange rate pressure Create rent tax, build capital funds, establish revenue stabilization funds, grant Central Bank independence

Youthful Rapid mineral expansion Exchange rate appreciation, Dutch Disease effects

Sterilize windfall rents, expand domestic absorptive capacity

Early-Mature Slowdown of output mineral Growing tax and foreign exchange constraints

Substitute new tax sources, encourage domestic savings, promote sectoral diversification

Late-Mature Decline in mineral output Persisting tax and foreign exchange shortages, rising unemployment

Depreciate real exchange rates, boost skills acquisition

Local contextLocal context

Culture and mining historyCapacity to administer the sector, and manage and

restructure the economyStrength of private sectorGrowing awareness about issues from parliamentary

bodies (e.g.PNoWB),CSOs, CBOs, and other stakeholders (Pres. Kuffor and oil in Ghana)

The learning curve process followed by a countryLocal politics, expectations and “power game”

(Chad and the World Bank)

A word on clusters and the NEPAD A word on clusters and the NEPAD Spatial Development Programme Spatial Development Programme

(SDP)(SDP)

Defining clustersDefining clusters

Concentration of expertise among closely linked industries and companies in which extensive investment in specialized factors of production encourages growth

A cluster is a geographically proximate group of companies and associated institutions in a particular field, linked by commonalities and complementarities (Michael F. Porter, On Competition, 1998)

Defining clusters (2)Defining clusters (2)

A cluster goes beyond upstream and downstream linkages

It includes indirect activities such as sidestream supply and support activities (financial, transport, communication, energy, water, engineering and consulting services, knowledge, education, and R&D Centres, providers of capital goods and consumables, industry associations, unionsetc)

Characterizing clustersCharacterizing clusters

Flow of information between companies that are functionally linked

Agglomeration/specialization of producers, customers and competitors (based on proximity or complementarity)

Permeable boundaries (firms constantly compete and collaborate)

Reinvention, innovation and technological evolutionTechnical spillovers

Levels of clustersLevels of clusters

International or global clustersNational or macro clusters based on inter-sectoral

linkages in the national economySector or meso clusters focus on intra-sectoral

linkages within specific industriesFirm or micro-level clusters

Examples of successful clustersExamples of successful clusters

London and NY financial centresHollywood and BollywoodSilicon Valley and ICT cluster of NokialandCalifornia wineSA Gold IndustryMining Cluster of Northern ChileNorwegian oil and gas industryThailand (and Sri Lanka) gem industry

Drivers of successDrivers of success

Firm strategy and vision/Process and organizational changes

Factor conditions (e.g. resource endowments, good infrastructure, location)

Demand conditionsRelated and supporting industries/Competition and

constructive cooperation between enterprisesHives of R&D, innovation, diversification and

technology diffusion

Drivers of success (2)Drivers of success (2)

Focus on regional clusters of related industries rather than on single champions: Common vision

Focus on quality and building competence: Knowledge, R&D, and innovation (must be continuos or lose to competition and the cluster dies)

Transfer of know-how, marketing support, critical mass of enterprises

Common platforms for services (legal, regulatory, etc), raising capital, and promoting investment

Drivers of success (3)Drivers of success (3)

Strong instruments for collaboration: industry/professional associations, Chambers of Mines, cluster councils, incubator/technology packs, informal social and other networks

Supportive governments (business environment, infrastructure development, facilitator, promoter of dialogue)

Regional integration to facilitate factor flows and reduce transaction costs

Barriers to cluster development in Barriers to cluster development in AfricaAfrica

Negligible backward and forward linkages/many enclaves

Procurement policies of multinationalsPoor infrastructure and services sectorSkills shortagesSmall size and reduced number of enterprises

Barriers to cluster development in Barriers to cluster development in Africa (2)Africa (2)

Unfourable business environmentPoor infrastructure and service baseSmall local markets and distant markets abroadTariff and non-tariff barriers that hinder value

additionCompetition from other regionsNeglect of industrial minerals

The key for Africa isThe key for Africa is

Focus on quality/competitiveness, rather than sizeLeverage existing assets and heritageFocus on acquiring, assimilating and improving

knowledgeExplore virtual networks: With the Internet age,

regional proximity has become less important/Think globally and explore outsourcing of services

Explore PPS, it cannot succeed if it is top-down and government-driven

The key for Africa is (2)The key for Africa is (2)

Explore the potential of regional cooperation and learn from other regions

Unbundle the sector (emphasis on all the value chain) to identify entry points particularly for:

- Local supplier/input industries -Cross-sector applications - Local beneficiation and value addition - SME development (procurement/other services)

But avoidBut avoid

Over regulation, intervention and centralization of decisions

SubsidiesFocus only on local companies and large and formal

sector companiesBarriers to competitionCreating clusters where business fundamentals are

not right

The SDP: A regional clusterThe SDP: A regional clusterWhat value does it bring?What value does it bring?

Effective investment prioritisation based on sound economic and business fundamentals

Better liinks and synchronisation between private sector economic investment project opportunities and key infrastructure projects

Realisation of broader development potential (densification) catalysed by infrastructure provision and anchor investments

Provides spatial focus for strategies to promote regional integration and development

NEPAD SD PROGRAMMENEPAD SD PROGRAMMEPortfolio of Possible SDPs

Region No. SDP Countries

North Africa 1 Maghreb Coastal Morroco, Algeria, Tunisia, Libya, Egypt

2 Red Sea-Nile Egypt, Sudan

West Africa 3 Niger (Dakar-Port Harcourt)

Senegal, Gambia, Mali, Niger, Nigeria

4 Conakry-Buchanan Guinea, Liberia, Cote D’ivoire

5 Sekondi/Takoradi-Ouagadougou

Ghana, Burkina Faso

6 Gulf of Guinea Nigeria, Benin, Togo, Ghana, Cote D’Ivoire, Liberia

Central Africa 7 Douala-N’djamena Cameroon, Chad

8 Libreville-Lomie Gabon, Republic of Congo, Cameroon

9 Bas-Congo DRC, Republic of Congo, Angola

East Africa 10 Mombasa Kenya, Uganda, DRC, Sudan

11 Djibouti Djibouti, Ethiopia, (Kenya)

Southern Africa 12 Madagascar Madagascar

Maghreb Coastal

Red Sea - Nile

Djibouti

Mombasa

Madagascar Bas Congo

Libreville Lomie

Niger: Dakar –Port Harcourt

ConakryBuchanan

Gulf of GuineaCoastal

SekondiOugadougou

Douala

NEPAD indicative Spatial Development Program First Pass!

Current SDIsRSDIP

NEPAD SDP: 1st Pass

POTENTIAL SDPs IN POTENTIAL SDPs IN North and West AfricaNorth and West Africa

Maghreb Coastal SDPMaghreb Coastal SDPCountries: Morocco, Algeria, Tunisia, Libya, EgyptCountries: Morocco, Algeria, Tunisia, Libya, EgyptAnchors: Oil/gas & PC industry, iron & steel (gas), Anchors: Oil/gas & PC industry, iron & steel (gas), tourism (coastal & heritage), tourism (coastal & heritage), phos & fertilisersphos & fertilisers, agric, , agric, fishing & aquaculture, gen. industry (HCs)fishing & aquaculture, gen. industry (HCs)Infra: HC grid, elec grid, coastal highway, cabotageInfra: HC grid, elec grid, coastal highway, cabotage

Niger SDP:Niger SDP:

Countries: Senegal/Gambia, Mali, Niger, NigeriaCountries: Senegal/Gambia, Mali, Niger, Nigeria

Anchors: Resource: Fe (Faleme) & iron/steel, Au Anchors: Resource: Fe (Faleme) & iron/steel, Au (Loulou), U (Niger), Oil/gas (Delta), GTL (Escravos), (Loulou), U (Niger), Oil/gas (Delta), GTL (Escravos), Al (Alscon), Ti (Dakar), Phos (Tiaba), agriculture Al (Alscon), Ti (Dakar), Phos (Tiaba), agriculture (cotton), etc.(cotton), etc.

Infra: riverine transport , rail to Dakar (??), Ore Infra: riverine transport , rail to Dakar (??), Ore terminal (~Dakar), power (elec grid), roads upgradeterminal (~Dakar), power (elec grid), roads upgrade

Conakry-BuchananConakry-BuchananCountries: Guinea-Liberia (Cote d’Ivoire)Countries: Guinea-Liberia (Cote d’Ivoire)Anchors: Fe (Nimba) & iron/steel (gas line?), Al Anchors: Fe (Nimba) & iron/steel (gas line?), Al (Conakry, Friguia), Au (Siguiri), Ni (Man) & FeNi (Conakry, Friguia), Au (Siguiri), Ni (Man) & FeNi (gas?), agriculture(gas?), agricultureInfra: gas line, rail (ore), elec grid, port upgradeInfra: gas line, rail (ore), elec grid, port upgrade

Gulf of Guinea Coastal SDPGulf of Guinea Coastal SDPCountries: Nigeria, Benin, Togo, Ghana, Cote Countries: Nigeria, Benin, Togo, Ghana, Cote d’Ivoire, Liberiad’Ivoire, LiberiaAnchors: Oil/gas (Delta & pipeline), GTL, Al (Delta), Anchors: Oil/gas (Delta & pipeline), GTL, Al (Delta), Iron/steel (Sekondi/Takoradi, Buchanan), Mn (Nsuta) Iron/steel (Sekondi/Takoradi, Buchanan), Mn (Nsuta) & FeMn (Sekondi- gas?); tourism (coast, heritage), & FeMn (Sekondi- gas?); tourism (coast, heritage), gen. industry (gas), agriculture (palm oil/carbon), gen. industry (gas), agriculture (palm oil/carbon), fishing & mariculturefishing & maricultureInfra: gas line,, elec grid, ports, cabotage, coastal Infra: gas line,, elec grid, ports, cabotage, coastal highwayhighway

Operationalizing the SDP: Way Operationalizing the SDP: Way forwardforward

Validation and building consensus on each DC Appraisal of existing and potential economic activity Identification and profiling of viable investment opportunities,

sectoral anchor projects and the requisite infrastructure Identification and removal of policy, regulatory, bureaucratic or

institutional constraints to investments Project appraisal for a portfolio of bankable investment projects Development of investment marketing strategies and implementation

of investment facilitation measures Development and implementation of investment and infrastructure

projects by both private and public sectors Program to commence with high potential DCs

In conclusionIn conclusion

Current commodity price boom offers a window of opportunity for Africa to extract better benefits from NR exploitation

The compact with partners should go beyond infrastructure expansion: Infrastructure not only for resource extraction, but also for integrated development (The NEPAD SDP)

Resource-based Industrialization should be promoted: Vertical, horizontal and lateral linkages

Investments in human and social capital formation are key Local participation important Institutional capacity needs to be strengthened, including for contract

negotiations and cross-departmental planning Good governance needed to improve outcomes