Government Revenues – the only real benefit from the extractive sector?

Advocates of natural resource extraction in developing countries commonly list five benefits: economic growth, employment, infrastructure, community investments, and government revenue.

Our conclusion is unambiguous: the overwhelming benefit is government revenues. Here’s a roundup of why…

Natural resources – a curse, a blessing, or a “preventable disease”

According to conventional wisdom, a rich endowment of natural resources represents a curse, not a blessing, as resources are said to do more harm than good. Findings show that the resource curse may be overstated in the case of Mozambique.

Firstly, natural resource dependence has been linked to increased incidence of civil war in places like Angola, Sierra Leone and the Democratic Republic of Congo.

In the case of Mozambique, natural resources were not a factor in the civil war. A distinction can be drawn between resources that are “lootable” – those that can be exploited with out sophisticated technology – and those that require industrialized production. While there is artisanal production in Mozambique, the majority of the mineral wealth can only be exploited with industrial technology.

A number of hurdles suggest that liquid natural gas exports are unlikely to begin before 2020

Offshore natural gas finds have been among the big stories in the sector over the past several years. The Italian oil company ENI reports 40 trillion cubit feet (tcf) of recoverable natural gas and American giant Anadarko reports 30tcf.

These projections, if proven, would place Mozambique among the top fifteen countries in total gas reserves.

Unlike coal where massive investments have already been made, the future of the gas sector is far less clear. Although exploration has led to ever-expanding reserves, it is important to note that no company has yet made the formal decision to develop a liquid natural gas (LNG) project in Mozambique.

Infrastructural limitations are casting doubts on Mozambique’s ability to meet ambitious predictions on coal exports

Ten years ago, Mozambique did not have an extractive sector. Today, many predict a coming natural resource boom in Mozambique. While there is no shortage of coal in Mozambique, there is growing hesitation around the country’s ability to export and subsequently generate revenues from this natural resource.

It has long been known that there are vast coal deposits in Tete and Niassa provinces. According to industry analysis, Mozambique has the potential to provide 20% of the world’s sea-borne coking coal by 2025.

South Africa’s troubled mining industry…lessons for Mozambique?

The future of mining in South Africa
by Peter Leon, October 05 2012 

As the Marikana commission of inquiry hearings have tellingly reminded us, the deaths were not a proud moment in South Africa’s embryonic democracy. It was, in some respects, not an unsurprising moment either for South Africa’s troubled mining industry. It could, however, prove to be the catalyst in crafting a new deal for the industry.

Mining was at the veritable crossroads well before 46 people tragically lost their lives during an illegal and unprotected six-week strike at Lonmin’s Marikana platinum mine from early August.

World Bank’s Vice President for Africa, Diop: “Too often local populations suffer …the development neglect of extraction…

PARIS, October 5, 2012 - With new discoveries of oil, gas, and other minerals generating a wave of significant mineral wealth in African countries, the World Bank today launched a new fund to help countries on the continent level the playing field and ensure equitable deals in their natural resource contracts with international companies.

With Africa holding 15% of the world’s oil reserves, 40% of its gold, and about 80% of the platinum group of metals, natural resources represent important development opportunities for the continent. For example, oil production has been growing steadily in Africa, and is expected to continue to rise at an average rate of six percent per year for the foreseeable future.

UNICEF tells Foreign Affairs – Helping the Bottom Billion is Good — and Good Business

Interesting advice for how the extractive indsutires can make long term and sustainable investments in Mozambique – prioritise the poorest! See below…
May 21, 2012
Prioritize the Poorest – Helping the Bottom Billion is Good — and Good Business
Robert Jenkins and Anthony Lake
ROBERT JENKINS is Associate Director for Policy, Planning, and Programme Monitoring at the United Nations Children’s Fund. ANTHONY LAKE is the Executive Director of the United Nations Children’s Fund.

Students display their work at the Anganwadi centre in Jamsaut village in Bihar. (Gates Foundation/flickr)

The world of international development has long been divided between idealists and pragmatists. The idealists give more weight to addressing the needs of the world’s most destitute. The pragmatists are driven more by impact at the aggregate level, such as increasing GDP per capita. A growing body of evidence, however, suggests that the interests of these groups coincide. In many cases, it is most cost-effective to focus on the poorest groups.

“Minerals will not solve all our problems…” says President Guebuza.

President Guebuza

(2012-05-10) Mozambican President Armando Guebuza warned on Monday that the social and economic problems faced by Mozambicans will not be solved simply through the exploitation of mineral resources, but through integrating the mining sector with other areas of the economy.

Guebuza was speaking in London at a meeting with the Mozambican community resident in Britain.

He recognised that Mozambique could have a brilliant future thanks to the mineral resources it possesses, and others that may be discovered in the future. However, this will only come about gradually.

“The minerals we have discovered will not give their best results immediately”, he said. “It will take time for us to recover the investments made, It will take time but that doesn’t mean that we won’t have gains. We shall gain from the jobs created and the taxes paid. Gradually there will be benefits, although not at the level that would be desirable”.

“This situation is creating impatience”, Guebuza admitted. “But we must keep a cool and clear head, because the benefits will come”.

Firmino Mucavele rightly says…..”You can’t eat minerals!”

One of Mozambique’s top economists, Firmino Mucavele, has warned that, despite the rapid development of the mining industry, Mozambique will go nowhere if it does not build up its agriculture. Cited by Radio Mozambique, Mucavele, who was recently distinguished by NEPAD (New Partnership for Africa’s Development) for his work on agricultural development, warned that you can’t eat minerals – minerals run out, and the resources derived from mining do not guarantee food security.

According to Mucavele, “70 to 80 per cent of the investment in mineral resources is foreign and only 20 per cent of the returns stay in Mozambique”.

Check out the Guardian article….

Congrats to David Smith for his excellent article, challenging many of us in development in Mozambique and other resource rich countries to ask the ever mosre important question — who will gain from all of this future wealth?

Check out David’s article at :

http://www.guardian.co.uk/world/2012/mar/27/mozambique-africa-energy-resources-bonanza