Africa unlikely to reap full benefit of its resources

Africa’s commodity boom of the 1970s is singularly remarkable because it failed to deliver economic and social transformation. In a majority of resource rich countries, a tight clique of  corrupt politicians and their acolytes controlled natural resources revenues. Is Africa’s new resource boom on course to produce a boon or a curse? 

A report just released by Kofi Annan’s Africa Progress Panel reveals that five deals closed between 2010 and 2012 cost the DR Congo an estimated $1.4 billion in lost revenue, equivalent to national budget allocations to education in 2012. These colossal revenue losses are attributed to fraudulent undervaluation of mineral assets. According to the Africa Progress Panel, a businessman with connections at the highest levels of the DR Congo ruling elite made returns on five deals worth $1.63 billion on assets purchased at $275.5 million if independent valuations were used to determine their true value.

On his first Africa tour, China’s Xi Jinping signed a massive resources-for infrastructure deal with the DR Congo. China will provide $9 billion to finance construction of roads, railways, hospitals, schools, dams and development of mines. On their part, the Congolese government will provide the China with up to 10 million tonnes of copper and hundreds of thousands of tonnes of cobalt. Two questions beg: Upon was pricing basis was the $9 billion value established? Was any independent valuation undertaken to validate the declared value of the mineral assets ?

The DR Congo’s land resources have not spared. In 2011 Feronia Inc., a Canadian company, sought to acquire nearly 90,000 hectares of farmland land in the DR Congo for its farming division to grow rice, oil palm and soybeans for export. At the time of negotiating this deal, the DR Congo’s Ambassador to the UK was a sitting member of Feronia’s board of directors.

What Africa Progress Panel has revealed is not unique to the DR Congo. Africa is white hot with mineral and land deals in what could be the second scramble for Africa. Here are other  equally scandalous examples.

Angola is Africa's second largest oil producer, behind Nigeria. The country is ranked 148 out of 187 in the U.N.'s Human Development Index, with life expectancy at 51.1 years. Child and maternal mortality rates are among the highest in the world. Millions of Angola’s oil dollars are stashed abroad or sequestered in a secret “parallel budget” with no public accountability. Angola was ranked 168 out of 183 countries in Transparency International's Corruption Perception Index for 2011.

For years, Konkola Copper Mines operated under a government contract of fixed royalty payment of 0.6% for the exploitation of Zambia’s copper reserves. In 2006/07, the Zambian government received only US$6.1million, while Konkola Copper Mines obtained more than US$301million in profits. In 2007 Zambia had the one of the poorest human development ratings, with 68% of the population surviving on less than US$1 a day and a life expectancy of 37 years.

Bangalore-based Karuturi Global Ltd has negotiated a deal to lease 311,000 hectares of land in Ethiopia’s Oromia and Gambela regions at a cost of $1.2 per hectare per year after 7 years. The land will be used primarily to produce rice and wheat for export. Karuturi. Karuturi has acquired farmlands in Tanzania and Sudan. The Ethiopian government defended these acquisitions saying they were critical to fighting poverty, increasing food supplies and improving livelihoods. Karuturi Global was recently found guilty of using transfer mispricing to avoid paying the government of Kenya nearly $11 million.

Uganda’s oil resources could generate up to $2 billion a year and catapult Uganda into the strata of middle-income countries. But even before oil production begins Uganda’s Parliament voted in October 2011 to freeze all oil contracts and investigate three senior ministers accused of taking money from Tullow Oil. Tullow denied the accusations.

Tullow estimates that Kenya’s oil fields could yield 10 billion barrels, enough to supply Kenya for three centuries at its current consumption. These oil finds will put Kenya at the center of Africa’s oil boom. The country’s key productive sectors, from land, agriculture energy and forestry, are shared among powerful vested interests linked to a handful politicians and civil servants. Kenya was ranked 139 out of 176 countries in Transparency International’s Corruption Perception Index for 2012.

Institutionalized graft means revenues from Africa’s resources could be squandered and misappropriated. Ordinary citizens could see little or no benefits of the resource bonanza. We have work to do.