Discussions
Beneficiation in SADC
Sean Woolfrey, tralac Researcher, discusses mineral beneficiation and value addition in SADC ahead of the 34th SADC Summit in Zimbabwe
The 34th Southern African Development Community (SADC) Heads of State and Government Summit is due to be held in Victoria Falls, Zimbabwe on 17 and 18 August 2014. While the Summit will cover a wide range of political and socio-economic issues relevant to the region, the theme of the Summit is ‘SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Beneficiation and Value Addition’. Given this theme, the Summit is likely to focus strongly on the development of economic policies that prioritise beneficiation and value addition in order for countries in southern Africa to maximise the benefits of the region’s abundant natural resources, and, in particular, its vast mineral wealth.
Southern African countries have long been producers and exporters of raw commodities, and in particular of mineral products. The region is richly endowed with mineral resources and a number of SADC countries have long mining histories. Even today, the region as a whole is still characterised by a high dependency on exports of unprocessed or semi-processed mineral products. According to International Trade Centre data, around three-fifths of the value of SADC’s total merchandise exports in 2013 was accounted for by exports of petroleum oils (34%), diamonds (5%), gold (4%), copper and copper products (4%), platinum (4%), iron ores and concentrates (4%) and coal (3%).
Although a number of SADC countries have experienced impressive economic growth over the past decade thanks to the recent commodity price super-cycle driven largely by significantly increased demand for mineral resources from emerging economies such as China and India, there has also been a growing recognition in the region that relying on commodity exports to spur economic growth is not a sustainable strategy in the long run, and that the region’s resource wealth needs to be leveraged to promote economic transformation. Policymakers in the region appear to be increasingly buying into the idea that the beneficiation of the region’s mineral resources should serve as a basis for industrial development, economic diversification and the creation of increased linkages between the region’s mineral sectors and its local economies.
In light of this, a number of SADC countries have taken steps in recent years to attempt to increase the benefits their domestic economies derive from their mineral endowments. Most have reviewed their mining legislation and some have adopted fiscal and industrial policies aimed at promoting domestic beneficiation. For example, in 2012, the South African Government adopted a ‘Beneficiation Strategy for the Minerals of South Africa’ to promote resource-based industrialisation. The Zambian Government, meanwhile, has raised taxes on mining companies and introduced a windfall tax for exceptional profits, while the Government of Botswana has taken steps to promote local processing of diamonds mined in the country. A number of SADC countries are also in the process of exploring the use of export taxes on unprocessed minerals as an industrial policy tool. The increased focus on beneficiation in the region, as evidenced by the choice of theme for this year’s SADC Summit, raises two important questions that need to be addressed at the Summit:
-
To what degree should SADC countries focus their economic and industrial policies on the beneficiation of local mineral resources?
-
What role, if any, can and should regional integration and cooperation play in promoting beneficiation and value addition in southern Africa?
On the first question, it should be noted that beneficiation is not universally viewed as an optimal strategy for industrial development and economic diversification. Since at least as far back as the writings of Albert Hirschman in the 1960s, there has been a line of thinking in development economics that emphasises the important role played by the creation of backward and forward linkages in the economies of developing countries, and this thinking has been used to advocate the addition of value to raw materials as a path to economic diversification and industrial upgrading.
However, some recent scholarly work has cast doubt on the appropriateness of attempts to focus on the creation of forward linkages (i.e. beneficiation). For example, in a 2008 paper, Hausmann et al. argued that:
“Structural transformation favors sectors with similar technological requirements, factor intensities, and other requisite capabilities, not products connected in production chains. There is no reason for countries like South Africa to focus attention on beneficiation at the expense of policies that would allow other export sectors to emerge. This makes no sense conceptually, and is completely inconsistent with international experience. Quite simply, beneficiation is a bad policy paradigm.”
Other scholars have suggested that for countries in the region with large domestic mining sectors, such as South Africa and Zambia, a focus on developing domestic industries supplying inputs to these sectors may be more fruitful than attempts to add domestic value to the products of local mining industries.
On the second question, it should be understood that since mineral resources are governed by the laws of the countries in which they are found, policies and strategies aimed at promoting beneficiation will inevitably be initiated at the domestic level. Nonetheless, these policies can be complemented by supportive regional policies. The SADC countries adopted a Protocol on Mining in 2000, followed by a Mining Strategic Plan in 2001. The aim of these instruments was to harmonise mining policies in the region and to provide a framework for cooperation on mining in the region, but they do not make any specific reference to value addition or beneficiation. In fact, the recent focus on beneficiation strategies in many southern African countries has yet to be reflected in collective action at the regional level.
At the regional level, discussion on beneficiation may stray into areas such as cooperation on large-scale regional projects and the development of regional value chains, but the real challenge facing commodity-dependent exporters in the region is to address and overcome the competitiveness constraints which prevent them from moving up or finding more lucrative niches in global value chains. Regional integration and cooperation undoubtedly has a role to play here. In particular, regional policies which address shortcomings in the region’s hard and soft trade-related infrastructure – including, among other things, transport, ICT and energy infrastructure – would serve to lower costs for domestic processors of locally-sourced mineral products and would create a more enabling environment for the creation of domestic processing industries. Furthermore, regional coordination on trade and investment policies can serve to promote the region as an attractive location for foreign investors and at the same time ensure that the investment that is attracted creates positive spill-overs for the host economy, including improved technological capacity and skills and greater access to global production networks.
Sources:
Hausmann, R., Klinger, B. and Lawrence, R. 2008. Examining Beneficiation. CID Working Paper No. 162, May 2008.
Lopes, C. 2014. ‘Leveraging Africa’s extractive sector for inclusive economic transformation’, GREAT Insights, Vol. 3, Issue 7, July-August 2014.
Ramdoo, I. 2014. ‘Developing value chains: What role for regional integration?’ GREAT Insights, Vol. 3, Issue 7, July-August 2014.