Mineral resources have the potential to boost economic growth. However, many studies claim that mineral resources have a negative impact on growth, particularly in developing countries. This is especially relevant to Africa, a mineral-rich continent.

There is an intense debate between supporters and critics of economic growth through exploiting mineral resources. Critics claim that mineral exploitation tends to be capital-intensive, socially unjust, financially unstable and environmentally destructive. Furthermore, foreigners own many mining companies in developing countries. Supporters say that outcomes are mixed across countries, many of which would be even worse off without exploiting their mineral resources. The complexity of the issue is evident in Africa, where the success of Botswana contrasts sharply with the experience of Sierra Leone, both mineral-rich nations.

Research from the United Nations Economic Commission for Africa argues that the question now is not whether to mine or not, but where mining should occur and how it should be organised to drive growth and poverty reduction. It is necessary to understand the transitory nature of mineral wealth, and the role that both small and large mining companies can play. Major challenges to harnessing the minerals sector to the needs of African development include:

• the creation challenge: creating a sustainable, integrated and diversified mining industry without neglecting environmental, social and cultural considerations
• the investment challenge: investing transitory mineral revenues appropriately to ensure lasting wealth
• the distribution challenge: distributing benefits from mining fairly between local and national interests so as to promote pro-poor growth
• the governance challenge: ensuring sound systems of governance that are free from corruption
• the macroeconomic challenge: ensuring a stable macroeconomic policy that allows for managing unstable commodity prices and enhances public interest in conserving wealth.

Mining, along with oil, represents the largest sources of investment and export earnings in Africa. However, previous mining activities have largely been mismanaged. Based on the challenges identified, key recommendations include:

• creating a stable regulatory and financial framework to attract and keep investment in mineral-rich countries
• focusing on better distribution of mineral revenues by improving governance and decentralising decision-making on resources to community level
• promoting greater discipline in dealing with mineral resource revenues in order to reduce risks
• formulating a conservative and well-informed spending, savings and investment strategy to transform mineral wealth into social benefits for the population
• promoting partnerships between public agencies, private companies and local residents, focusing on community participation, to improve livelihood opportunities for local people.

The general strategies outlined above need to be country-specific. Incorporating these policies into Poverty Reduction Strategy Papers will make it easier to implement them effectively.

Source(s):
‘Mainstreaming Mineral Wealth in Growth and Poverty Reduction Strategies’, ECA Policy Paper No. 1, ECA: Addis Ababa, by Antonio M.A. Pedro, 2004

id21 Research Highlight: 22 September 2006

Further Information:
Antonio M.A. Pedro
Economic Commision for Africa
P.O. Box 3001
Addis Ababa
Ethiopia

Tel: +251 11 544 3238
Fax: +251 11 551 4416
Contact the contributor: apedro@uneca.org

United Nations Economic Commission for Africa

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