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.

At the 40th Anniversary Meeting of the Zone Franc Monetary Union in Paris today, attended by over 20 African Finance Ministers, the French government strongly supported the new fund, and encouraged other governments and donors to back the Bank initiative.

“We stand fully behind the World Bank in its efforts to help African countries secure the best-possible mineral contracts with international companies in order to promote the long-term development of their countries and the wider continent. We urge other governments and donors to also support this new World Bank initiative,” said French Finance Minister, Pierre Moscovici.

Welcoming the French government’s strong support, the World Bank’s Vice President for Africa, Makhtar Diop, said the new fund would work closely with the African Development Bank and other partners for maximum impact, and would welcome donor support to expand its reach.

“It is clear that Africa sits on top of extraordinary wealth and that these natural resources could be transformational for the continent,” said Diop. “Being able to negotiate the best-possible deals is essential for African countries to convert more of their natural resources wealth into inclusive and sustainable growth.”

According to a concept note on the new World Bank fund, translating natural resources wealth into broad-based development can be difficult in Africa. Contracts to develop natural resources are often highly complex, and African governments may be less well-informed about technical details and geological endowments than the oil, gas, or mining companies who come to negotiations with highly-paid lawyers and technical staff.  The Bank notes that the potential benefits of new extractives contracts in African countries are likely to be missed in such negotiations when governments have insufficient capacity to manage the negotiations process.

On top of this unbalance between governments and private companies, is the complexity and long life of these contracts, and a further challenge is that opportunities to create local jobs are often frustrated by poor infrastructure and limited country capacity.

The Bank notes that managing the environmental and social footprint of the extractive industries sector is also essential to avoid damage to land and waterways.

“Too often local populations suffer all the environmental damage and development neglect of extraction, while the benefits and the profits end up far away,” said Diop.

The proposed new fund would cover several key priorities

1.      Legal advice to negotiate better deals from private investors—This could include direct legal advice during negotiations, advice on the methods of negotiation (competitive bidding, bilateral negotiations, and so on), advice on different transactions fees.   Advice would be available from reputable legal firms.

2.      Help to reduce environmental risks—Environmental risks occur at two stages: during extraction and when operations close. Technical assistance is typically needed to assess environmental impacts, as well as to develop workable solutions and remedies that are effective.

3.      Technical assistance to address social risks—This could include advice on new benefit sharing arrangements drawing on other Bank and global experience , as well as technical assistance to assess social impacts, health, and livelihood effects, as well as local service delivery.