The State of Mining
Value Chains in Africa
Isabelle Ramdoo
Deputy Head,
Trade and Economic Transformation Programme
1 September 2014
State of mineral value addition
in Africa
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1. Mineral, minerals everywhere…..
Mining in Africa:2012
Mineral Resources: % global
Est. Oil and Gas Reserves, 2012
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…. But too concentrated …
Oil and gas as a % of merchandise exports, 2009
Export concentration, 2010
Ores and metals as a % of merchandise exports, 2009
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Source: World Bank (2010, 2011)
And economic contribution still to low…
BUT: Immense potential and largely untapped
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Value Chain and spillover
experiences across Africa
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1. On Bauxite and aluminum production
Key players in Africa: Guinea by far the largest; Ghana, Cameroun, Sierra
Leone have some reserves and production
Guinea: refines into alumina, but no refinery. Mostly sent to Ukraine;
Ghana & Cameroun: small smelters
Biggest smelters are in Mozambique and South Africa, both do not mine
bauxite. Both source their bauxite from Australia;
Some challenges to the bauxite sector:
1. Ownership of companies: Most companies are foreign owned. Not a
problem in itself. Problem is that big mining companies in the sector are
also vertically integrated and possess their own refineries and smelters all
over the world. This allows them to ship parts of the value chain to the
cheapest place of production; BHP sources its bauxite and alumina from its
own mining companies elsewhere.
1. As a result, difficult for African countries to join the club of competitive world
class producers due to a variety of constraints:
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a.Energy: Smelting is the most energyintensive aluminum production process
and energy inputs account for up to half
production costs. Insufficient production,
unreliable supply and cost is too high;
b. Infrastructure: the other weak link: Increases
the cost of transport across the continent
(sometimes cheaper to use resource corridors
from pit to port and ship out than send to
neighbouring country where production costs
may be cheaper). Port logistics insufficient
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3. The regulatory framework in place largely favours
attracting FDI with insufficient emphasis on transformation
4. Other challenges to be addressed: Lack of technology and
technical know-how as well as skills prevent development of
local suppliers; stiff business climate; cross-border trade
5. Consumption demand (hence market) for aluminum in
Africa is still very low and companies operating smelters
already have their markets elsewhere (mostly China, which
consumes about 50% of global production);
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Generally: linkages are too few and often quite “shallow”
There are 3 ways countries look at spillovers and value chains:
1. Through FDI and contribution of investment to economy;
So far, in most resource rich countries, much FDI were
concentrated in “extraction”, which traditionally fosters little
linkages. Where those linkages exist, they produce few
spillovers (miners are not necessarily manufacturers)
2. Through value addition, that is how much value is added to
raw materials, either through backward linkages, for those that
supply the extractive sector; or through forward linkages (i.e
through the transformation of commodities into final products);
3. Through the use of local content requirements, notably
through use of local suppliers and staff (not the same as VA)
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When looking at value addition and linkages, it is important
to pay particular attention to:
1. The number of economic activities that can be developed
from the linkages (i.e the “breadth” of linkages) (even if
those add little value);
2. The actual value that is added locally through linkages (i.e
the “depth” of linkages).
While both are important for the domestic economy, they
may require different capabilities, and will have different
impact on how a country wants to use its natural resources
and the types of policies that may be put in place.
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1. Examples of countries where linkages (i.e no. of
activities + value added) has progressed
Results are overall, quite mixed, but few examples where
countries have made some progress in (i) enlarging the
number of activities that are linked to the extractive sector
(both backward and forward); and (ii) add value, although by
international level, more needs to be done. Eg. are:
1. Ghana: developing backward linkages in the gold sector
 Second largest gold producer in Africa; mining contribute to
approx. 6% of GDP, 43% of Ghana’s exports
 Reforms to promote localisation policy and facilitate local
content, notably through
10% Gov. stakes in large-scale mining
Preference for local sourcing;
Preference for local staff and training requirements
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 Results:
Large number of companies reported to increasingly use local
suppliers, notably in metal and metal working, civil engineering,
logistics support and business services (backward);
Local purchase from locally produced goods and services account
for some 30% of aggr. spending of mining companies.
However, forward linkages (i.e adding value to finished products)
remain quite low;
Local sourcing is not in the sectors where the highest value
added are;
But overall, over last 10 years, Ghana has increased the number
of local companies working with mining companies and has
started to add value locally (although much more still to be done,
as reforms policies are implemented)
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2. Nigeria: (essentially backward oil sector)
Oil represents a third of GDP and significant portion of
government revenue. Largest oil producer in SSA
So far, only 4 refineries, but operating only at 40% of full
capacity due to technical and governance challenges;
Long history of local content policy, mainly through tradition
of protecting Nigerian firms, joint operation agreement,
production sharing agreements, and use of selected local
Current estimate of local content: Rose from 3 – 5% in 70’s
to 39% in 2009, higher than in any other African oil rich
country (but lower than global standard)
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• Case of Nigeria is complex to assess:
• There has been some important degree of backward
linkages, in terms of VA, in certain activities (fabrication &
construction; well construction; control system and ICT)
but still largely insufficient, given Nigeria’s capacity;
• Forward linkages – e.g refineries still to be fixed. Large
investment expected ($9 billion project) to build largest
African refinery; Nigeria still net importer of fuel for
domestic consumption
• All reforms not finished: The Petroleum Bill still to be
passed; Significant progress made, but Nigeria has the
capacity to do much more.
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3. Angola (backward linkages into offshore oil production)
 2nd largest SSA oil producer; Rep. 50% of GDP, 60% of Gov.
 State manages resources and concessions (through Sonangol) ;
 Sonangol: active investor in extraction & in forward oil
processing. Responsible for driving backward linkages, with
local firms. But results rather mixed
 Has been pushing for local content policy, notably through:
Preferred local employment and obligation for companies to pay levy
for development of human resources;
Preferred treatment for local firms: key rule is exclusivity for local
firms, if activity does not require high capital value and specialised
know-how; and not more expensive (by >10% than imports)
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So far, only 2 linkages of significance developed (a. cables that
enable communication between sub-sea production systems
and rigs; b. flow lines to enable two-way flow of crude from
sub-sea to surface)
Other basic goods and services (accommodation, catering,
cleaning, stationary) procured locally. The rest, still imported.
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2. Examples of countries where number of activities
increased, but linkages quite shallow
1. Botswana: (Forward) linkages in the diamond sector
 Attempts in the 80’s to add value largely failed, in part
because the company was not convinced abt the policy;
 Reforms triggered by the slow depletion of the resource
 Key date: 2005: License of main company (DeBeers) was
up for renewal. Govt insisted that the condition for renewal
was to help Botswana to create a viable and sustainable
cutting and polishing industry;
 As a result, 16 companies licensed to operate in Botswana,
under condition that they would transfer skills locally;
 Govt also negotiated for DeBeers to transfer aggregation
activities (i.e mixing of supply of diamonds from different
sources for sale) to Gaborone
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• 3000 direct new jobs were created in cutting and polishing
• By 2012, aggregate activities were transferred from London
to Gaborone;
• This is expected to create significant spillovers – it will
bring international sales to Botswana – notably in
hospitality, finance and transport sector;
• Too early to assess overall impact of both policies, but
Botswana managed to broaden its participation along the
value chain
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3. Examples of countries where value chains became
thinner over time..
1. South Africa: Interesting case for 2 reasons:
a. Most diversified African economy, where mining played a
significant role in industrial development;
b. A regional hub: many companies (multinational) use S.A
as a springboard to invest elsewhere or well-established
S.A companies have expanded their activities regionally
First, value chain development in S.A
S.A has a well-developed industrial sector and mining has
extensive linkages in the economy
However, mining has declined over the years – from 8.8% to
6.3% of GDP bet. 2000-10.
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For many years, policy was to:
1. Provide a good envt for mining companies, notably by
keeping labour cost low;
2. Advanced backward linkages, by protecting local industries
through tariff protection
• But new policy now is to promote forward linkages –
through beneficiation in 10 strategic commodities, to feed
into 5 value chains; namely:
i. Energy commodities VC (coal, uranium, thorium);
ii. Iron and Steel VC (iron ore, chromium, nickel, vanadium;
iii. Pigment and titanium metal production VC (titanium;
iv. Autocalytic converters and diesel particulate VC (platinum)
v. Jewelry fabrication (gold, platinum, diamond)
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 Backward linkages: SA has developed capabilities
(technology and skills) and hence expertise to build worldclass backward linkages and has developed clusters of firms
in mining equipment and related services;
 Forward linkages: too early to say how far the policies will
be implemented and what impact they may have. But S.A
has a good track record in the mining sector. True that
backward and forward linkages require significantly different
types of capabilities due to the different types of activities,
but its experience will be a great asset;
S.A as a regional hub: Important as companies use SA as a
base to expand activities elsewhere in Africa, notably due to
possibility to use SA’s existing mining activities.
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2. Zambia: Copper sector
 Copper rep. about 9% of GDP; 80% of exports earnings
 Copper sector was privatised as a result of SAPs in the
1990s. Since then, no vision on mining adopted and no
provision in legislation regarding local content or linkages;
 Existing linkages quite developed
 Forward linkages: Copper mostly exported in refined form;
new investments to expand production capacity
 Some further forward linkages take place (semi-fabricates)
but quite thin – One big chinese investment (large-scale
semi fabricates manuf co.) may deepen this
 Backward linkages: Also quite substantial: Around 200
suppliers are recorded to supply inputs to the industy
 Large mining companies also report to procure between 60 –
86% of their inputs from local supply chains
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But looking closely at those linkages:
 First tier suppliers – some manufacturing firms exist –
metallurgic, plastic & rubber products or engineering
products; Local value added quite important, but increasing
competition from outside;
 Subsidiaries of MNEs and large-scale providers – lower value
addition but they specialise in capital intensive activities and
specialised transport for e.g. quite competitive firms;
 Large amount of small-scale suppliers with very low levels of
local content. They outnumber the 2 above, but add the
least value. Activities include importation of supplies;
intermediary activities etc.
 But Zambia is experiencing thinning of its supply chain:
Privatisation (and re-structuring of industries) led to
companies shifting from local suppliers to imports – due to
lack of local capabilities (skills, technological)
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Linkages and value addition are multidimensional processes: need
multi-layered policies and simultaneous efforts
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Thank you
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