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Mining for Prosperity in Sub-Saharan Africa

November 10, 2015
As a region with one of the highest poverty rates in the world, Sub-Saharan Africa must look for innovative policy options to relieve its situation. The optimal method for tackling the poverty problem would improve the region’s situation on multiple fronts, including macroeconomic indicators as well as individuals’ access to technology. Although the public generally looks down upon the mining industry due to its adverse side effects, including accidents, the mining sector could be the right answer for Sub-Saharan policymakers. The current climate for mining in Sub-Saharan Africa presents a prime opportunity for governments to position their countries for sustained development in multiple areas of growth.

Countries in green are classified by the United Nations as sub-Saharan Africa; Sudan (light green) is sometimes categorized as North Africa.

 Countries in green are classified by the United Nations as sub-Saharan Africa; Sudan (light green) is sometimes categorized as North AfricaSource: Wikimedia Commons.

Leveraging Mining Potential to Increase Energy Supply

A major concern for mining companies in their outlook for Sub-Saharan Africa (SSA) is the existing constraint on energy access. Moody’s Investor Service indicated in 2014 that “a lack of adequate electricity supply may soon become a major infrastructure bottleneck particularly in the Democratic Republic of the Congo.”[1] Therefore, mining companies have a vested interest in improving energy supply in SSA countries such as the DRC. The SSA includes “22 percent of the gold, 58 percent of the cobalt, 95 percent of the platinum group metal (PGM) reserves, 7 percent of the copper, and 18 percent of the uranium” in the world.[2] Consequently, SSA is a high priority region for profit-seeking mining companies due to its high mining potential.

Since in “many of these countries, the mining sector is just beginning to develop on a large scale,” increasing energy access would dramatically increase profits for mining companies.[3] One way in which to harness this incentive is to designate the mining sector as the “anchor consumer” of electric power in the region.[4] That is, since mining requires huge amounts of electric power to operate efficiently, the operation of mining plants can be used to establish the sustainability of more capable electric utilities.[5] In the past, mining has been used to anchor the market for electricity generated by the Akosombo Dam in Ghana, allowing the dam to satisfy most of the country’s need for electric power in addition to some external demand.[6] The incentive to mine in the region will thus increase for electric power, driving the performance of electric power providers.

Akosombo Dam in Ghana

Akosombo Dam in Ghana. Source: Wikimedia Commons

Furthermore, the development of electric utilities and expansion of the power supply is feasible. One particularly strong source of energy in the region is hydropower. Within SSA, “only 10% of this hydropower potential has been mobilized.”[7] Thus, there is no real shortage of the resources required for electric power. Recently, multiple promising hydropower projects have been initiated in SSA. In May of 2013, the government of the DRC announced the creation of a project that will, if completed, be the largest hydroelectric power plant on Earth.[8][9] The first phase of the project, called Inga III, starts on the Congo River banks.[10] Ethiopia has also undertaken aggressive efforts to expand its hydropower supply in the last few years, namely the “6,000-MW Grand Renaissance dam … [and] the 1,800-MW Gibe III dam.”[11] Currently, countries in SSA are receiving financial support to progress through these massive projects. For instance, the World Bank promised $73.1 million to the DRC for the Inga III project in March 2014.[12] Therefore, the current climate is highly conducive to developing the hydropower supply in the region.

By incorporating mining companies in their effort to increase the power supply, countries in SSA can make their energy development self-sustainable. One potential threat to the synergy of mining companies and the development of hydropower in the region is the coexistence of less clean energy sources, the most prominent of which are “coal and natural gas.”[13] It is worthy to note here that mining already provides countries in the SSA with a robust source of tax revenue.[14] Leveraging this ability to tax the mining companies, governments in the region can resolve the issue by introducing exorbitant penalties to discourage the use of unclean sources of energy or by directing a substantial portion of taxes from mining to the development of hydropower. A byproduct of this strategy would be a positive impact, or rather a decrease in the negative impact, on the environment in the long term.

Economic benefits of increasing mining activity

The macroeconomic upside to increasing mining activity is evident from the past fraction of exports from SSA represented by mining. In 2010, in 13 African countries, “mineral products accounted for … more than 40 percent of exports.”[15] The International Monetary Fund states that, “Sub-Saharan Africa enjoyed robust economic growth of 5 percent in 2014 driven by strong investment in mining and infrastructure and by strong private consumption.”[16] Mining has been central to sustaining the economies of countries in SSA, and macroeconomic indicators such as the total value of exports, which is, in turn, included in the GDP, are positively correlated with mining activity. In addition, since “mining firms buy tens to hundreds of millions of dollars of goods and services each year, the providers of which often employ several times more workers than the mines themselves,” increasing mining activity could improve employment rates as well.[17] Finally, growth in one prominent country in the SSA, South Africa, has recently “decelerated substantially on account of mining strikes and electricity supply constraints.”[18] By developing a broader, more reliable supply of electricity through an increasing in mining activity, countries in the region can dampen the effects of localized power problems such as those seen in South Africa. This result of dispersing power production throughout SSA would reflect positively in macroeconomic indicators, such as GDP.

 Increasing access to electricity is vital for improving the performance of small businesses and promoting individuals’ welfare in SSA. Almost 50% of firms in SSA “identify electricity as a major constraint to doing business.”[19] The impact of the lack of electric power in the region thus has a real impact on the financial prospects of those living there. Utilizing the mining sector to make electricity more accessible would propel the growth of individual businesses, allowing people to raise their income levels in a sustainable manner. Faced with the need to power lighting, households turn to “kerosene and dry-cell batteries” when electricity fails them, and these alternatives have a “detrimental [effect on] health.”[20] Additionally, wider access to electricity enables greater use of technology, which can be particularly beneficial to education in SSA. For instance, mobile educational apps have been very successful in developing countries; “four of the top five countries for educational app downloads are developing ones - India, South Africa, Kenya and Nigeria.”[21]. The existing interest in the use of technology for educational purposes suggests that improving access to electricity could broaden the educational benefits offered by technology. Better education is key to reducing poverty in SSA, so wider electricity access, and thus increased mining activity, can improve the condition of poverty in SSA. 

Poised for tremendous growth, countries in Sub-Saharan Africa should recognize the upside offered by policies aimed at increasing mining activity. Policymakers should capitalize on the supportive climate offered by profit-hungry mining companies and growth of energy infrastructure to create a synergy between these two economic forces. Maximizing the potential of this relationship would likely require an immense amount of coordination among the countries in SSA, but the results for poverty and economic prosperity in the area would be well worth the struggle.


References:

  [1] Migliavacca, Gianmarco, and David Staples. “Moody’s: Miners Find Growth Opportunities in Sub-Saharan Africa but Diversification Needed.” Moodys.com. May 12, 2014. Accessed November 2, 2015.

  [2] Banerjee, Sudeshna Ghosh, Zayra Romo, Gary McMahon, Perrine Toledano, Peter Robinson, and Ines Perez Arroyo. “The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa.” Washington DC, Washington DC: World Bank, 2015.

  [3] Ibid. 

  [4] Ibid. 

  [5] Ibid. 

  [6]Ibid.

  [7] “Transformational Hydropower Development Project Paves the Way for 9 Million People in the Democratic Republic of Congo to Gain Access to Electricity.” The World Bank. March 20, 2014. Accessed November 2, 2015.

  [8] Pearce, Fred. “Will Huge New Hydro Projects Bring Power to Africa’s People?” Environment360. May 30, 2013. Accessed November 2, 2015.

  [9] “The Democratic Republic of the Congo Fixes October 2015 as the Date for the Launch of the First Phase of the Largest Hydroelectric Plant in the World.” PR Newswire. May 18, 2013. Accessed November 2, 2015.

  [10]Ibid.

  [11] Pearce, Fred. “Will Huge New Hydro Projects Bring Power to Africa’s People?” 

  [12] “Transformational Hydropower Development Project Paves the Way for 9 Million People in the Democratic Republic of Congo to Gain Access to Electricity.” 

  [13] Banerjee, Sudeshna Ghosh, Zayra Romo, Gary McMahon, Perrine Toledano, Peter Robinson, and Ines Perez Arroyo. “The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa.”

  [14] Ibid.

  [15] Ibid.

  [16] “Regional Economic Outlook: Sub-Saharan Africa Navigating Headwinds 9World Economic and Financial Surveys).” Washington, DC, Washington DC: International Monetary Fund, Publication Services, 2015.

  [17] Banerjee, Sudeshna Ghosh, Zayra Romo, Gary McMahon, Perrine Toledano, Peter Robinson, and Ines Perez Arroyo. “The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa.”

  [18] “Regional Economic Outlook: Sub-Saharan Africa Navigating Headwinds 9World Economic and Financial Surveys).”

  [19] Banerjee, Sudeshna Ghosh, Zayra Romo, Gary McMahon, Perrine Toledano, Peter Robinson, and Ines Perez Arroyo. “The Power of the Mine: A Transformative Opportunity for Sub-Saharan Africa.”

  [20] Ibid.

  [21] Collard, Dominic. “Mobile Apps the Key to Education in Developing Countries.” Pearson. April 28, 2014. Accessed November 2, 2015.

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