energy & mining
The key in this commodities downturn is to develop win-win partnerships. A central theme at Indaba was the importance of hiring and training local people, and increasing the focus on local procurement which, in turn, helps diversify local economies through linkages to mines’ supply chains. Best practices in training for small and medium-sized enterprises in health, safety, environmental and quality standards were highlighted as well as initiatives to ensure women share in the benefits flowing from mining evenly.
Collaboration is also key to ensuring that the power generated for mining in Africa benefits communities. Power-mining integration is essential when you consider that Sub-Saharan Africa today only generates 80 gigawatts of power each year for 48 countries and a population of 1.1 billion people. Two-thirds of people in the region live entirely without electricity and those with a power connection suffer constant disruptions in supply. Without new investment and with current rates of population growth, there will be more Africans without power by 2030 than there are now.
The last few years have brought an uptick in the number of mining investments that have been the subject of disputes between investors and governments. This trend is of considerable concern to the players in the sector across the globe.
Yet, there is a wealth of wisdom to be—pardon the pun—mined from the literature over the past few decades in an attempt to distill what the main risk factors are in agreements that govern investments in the sector, with specific focus on taxation regimes.
Number of Expropriatory Acts by Sector – three-year rolling averages
Source: Chris Hajzler (2010), “Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006,” University of Otago in MIGA,World Investment and Political Risk 2011
Source: Getty Images/Sam Edwards.
In Africa, estimates indicate that an annual investment of $93 billion is required to address the continent’s basic infrastructure needs – more than double the current level of investment.
The lack of productive investment of resource revenues, with spending of these revenues often heavily tilted towards consumption, is a critical component of the so-called resource curse, the observation that countries rich in natural resources frequently have slow long-term growth. Following oil or mineral discoveries, as the expectation of increased wealth spreads, pressures to spend typically become hard for politicians to resist, public sector salaries go through the roof, wasteful spending increases, corruption may flourish, hidden foreign bank accounts may be established, and the number of unproductive “white elephant” projects grows.
How can resource-rich countries ensure that a large share of oil, gas, and mining revenues are used for productive investment rather than excessive or wasteful consumption?
In my very first meeting with a government official, I was asked about World Bank support for geothermal power generation in Djibouti and the exploration needed to identify viable sources. I must admit, at the time, I was not very familiar with the technology. Nevertheless, I learned fast about geothermal energy and about the project that was under preparation.
When I was a graduate student, I often drove through the Altamont Pass wind farm. I thought of them as the California’s equivalent of Dutch windmills, more beauty than function. Little did I know that it was one of the first, and largest, wind farms in the United States and that I would someday learn more about their value and potential.
Managing energy demand in a country like China, where millions of businesses and households rely on a steady supply, is definitely one of China’s greatest challenges. The thorny question is how can the country find a sustainable way to provide reliable sources of energy to such a huge and demanding market? Well, answers are starting to appear on the horizon, or rather, in the sky.