Of late, the issue of value addition has become a topical issue, and many countries are looking for ways to make it mandatory for all stakeholders of specified industries. Value addition means processing natural resources fully before any of it is exported or consumed. This is also part of building local content in the sector. What is ‘local content,’ and why has it become such a hot issue in the natural resource industry in general and the oil and gas sector in particular?
Local content is the development of local skills, technology transfer, and the use of local manpower and local manufacturing in the industry.
This idea would certainly lead to domestic beneficiation, which is the processing of mined output into a product of higher value. The issue of taking advantage of the full value chain in the mining sector recently took centre stage at the continental forum on Enhancing Value Addition in the Extractive Sector organised by UONGOZI Institute and the Office of the Vice President of Ghana.
In his presentation on enhancing local content in an integrated extractives industry, Mr. Anthony Paul, the Managing Director of Association of Caribbean Energy Specialists Ltd. (ACES) said it has become a very important issue due to the fact that in this day and age, every country in theory would like its citizens to capture the commanding heights of its economy, and in that way keep its wealth within its borders as well as providing jobs to the ever-increasing populations in many of these resource-rich developing countries.
This can be achieved through capacity building, creating and supporting SMEs as well as building a local products and services pool. In brief, when a foreign company makes products in a country, the expertise, knowledge, materials, and parts that have been contributed from or made in that country rather than imported comprise what is called local content.
A minimum level of local content is sometimes a requirement under trade laws when giving foreign companies the right to participate in a particular economy or territory. Delegates said majority of the African rich mineral states are not only earning the minimum from their resources through the export of unprocessed ore, but are also limiting the employment benefits, and wealth creation, leaving themselves vulnerable to fluctuations of the global resource markets.
According to Ghana’s Vice President, Dr. Mahamudu Bawumia, Africa had 30 percent of the world’s mineral resources, 12 percent of the world’s oil reserves and 42 percent of the world’s gold reserves, and yet human poverty still prevails in the continent.
“The paradigm we have been pursuing since independence needs a change. We have gone on the path of natural resources extraction but no benefits. Therefore, a new paradigm will require change from Africa’s export of primary commodities,” he said He noted that this could be achieved through local content maximisation.
The Head of Research and Policy at UONGOZI Institute, Mr. Dennis Rweyemamu, said Africa has an abundance of extractive resources but lacks domestic mineral beneficiation, which is the processing of mined output to a product of higher value.
“Most of the minerals are extracted and exported in their raw state. Minerals are extracted and processing is done elsewhere. Majority of the African rich mineral states are not only earning the minimum from their resources through the export of unprocessed ore, but are also limiting the employment benefits, wealth creation and leaving themselves vulnerable to fluctuations of the global resource markets.” said Rweyemamu.
He told delegates that in many of our countries, extractives are enclave sectors separated from other economic activities, adding that they are inherently capital intensive and provide limited opportunities to host country manufacturers, suppliers and labourers.
“This has meant that extractive sectors have failed to be the source of economic growth through job creation, demand for local goods and services as well as transfer of knowledge and technology,” he said. He noted that countries have relied on revenue in form of royalties, profit shares, corporate income tax and dividends from state held equity in the projects to support development endeavours.
But there is now a growing realisation, he said, that far greater and more sustainable benefits can be obtained from every gram and ounce of mined minerals through development of value addition chains. He said smelting can provide employment and technology transfer, additional government revenue through sale of higher value products and lowers risk of tax avoidance. He cautioned that if African countries seek to get better benefits from their minerals, then priority should be to make such an industry work.
Tanzania’s Commissioner of Minerals, Mr. Benjamin Mchwampaka said Tanzania is keen on value addition and that given the recent changes in the mining laws, the government is working towards stopping export of raw minerals. But he said the process is gradual, which necessitates inviting of partners with technical and financial capacity with the idea of putting up one or two medium sized smelters.
“Of course, we have to take advantage of economies of scale, so we have to find ways of encouraging countries in the region coming together to put up projects of this nature,” he noted.
Wits University Adjunct Visiting Professor Dr. Paul Jourdan said that in some cases, African countries don’t have an idea what quantity of minerals they have.
“So even in giving out mining licences, a country may not get a decent deal. So, we need much of that data,” he said. He noted that such threats can be overcome with appropriate extractives policies and strategies and ensuring the deliberate development of local mining capital.
Director of Policy Advisory at ACET Dr. Edward Brown said SADC research shows that countries that have given preference to local procurement in mining have actually performed better. UONGOZI Institute has organised the conference in collaboration with the Office of the Vice-President of the Republic of Ghana.
The main objective of the Forum is to accelerate discussions on how African countries should position themselves to optimise benefits from the extractive sector through the implementation of value addition initiatives.
(This article was originally published by Daily News, on 09th December, 2017)