Mineral beneficiation and regional governance of investment in SADC
William Mwanza, tralac Researcher, discusses the outcome of the recently held Extraordinary SADC Summit, held under the theme “Leveraging the Region’s Diverse Resources for Sustainable, Economic and Social Development through Beneficiation and Value Addition”
An Extraordinary Summit of the Heads of State and Government of the Southern Africa Development Community (SADC) was held in Harare, Zimbabwe, on 29 April 2015. The Summit considered and adopted the SADC Industrialisation Strategy and Roadmap. This document has been formulated over recent years and operationalises this year’s theme, which is centred on leveraging the region’s resources for sustainable, economic and social development, particularly through beneficiation and value addition.
The role of industrial development as a means for attaining structural transformation, inclusive and sustainable development and poverty reduction in African countries has increased in prominence. This is indeed the case in SADC where it has been made the top priority in the revised Regional Indicative Strategic Development Plan (RISDP), alongside market integration. After a few years of deliberations and work on this document, the revised RISDP was also adopted at the extraordinary Summit, and will guide the implementation of SADC policies and programmes for the remaining duration of the RISDP, i.e. 2015 to 2020.
The industrialisation strategy and roadmap is the main tool for operationalising the plans for industrial development in the RISDP. It is quite extensive in its coverage, as it documents the global and regional context within which industrialisation in SADC must be pursued; the SADC economy in 2015; SADC’s key regional and industrial programmes; industrialisation and possible growth paths for SADC in the 21st century; industrialisation and regional integration; lessons from SADC industrialisation experiences; industrial policy; and growth scenarios for the SADC region.
An aspect that has been highlighted in the document as a primary route for industrialisation in SADC countries is beneficiation and value addition to mineral resources. This is in view of the significant mineral reserves that are prevalent in these countries, coupled with increasing global demand for them. Experiences have shown that the exploitation of mineral resources has largely not translated into widespread development benefits in most African countries. Hence beneficiation and value addition have been identified as an important means through which benefits from the mining sector can be optimised including through increased activity in other sectors of the economy.
The efficacy of beneficiation and value addition of mineral resources as a means for attaining sustainable development in the African context is an area of ongoing debate. However, it has been accepted as a viable option and has been prioritised in SADC’s industrialisation policy dialogue and plans. As with most other areas of industrial policy, it is an endeavour that is primarily within the precincts of national Governments, who would want to exploit natural resources for national development. The industrialisation strategy and road map acknowledges that a blanket approach to beneficiation and value addition across all mineral resource sectors is not advisable. This strategy would be most workable in resource sectors that a country can be seen to develop a competitive advantage in. Though the effects vary across sectors, such competitive advantage is bolstered by factors such as transport infrastructure, proximity to demand, access to raw materials, and the cost of energy.
This scenario makes the role of regional frameworks more pertinent for beneficiation and value addition within national locations. For example, regional transport and energy networks can go a long way in influencing locational decisions by investors based on raw materials and proximity to markets. In this regard, the SADC Regional Infrastructural Development Master Plan (RIDMP) has been identified as instrumental for such regional connectivity. Going forward, efforts will have to ensure that infrastructural projects that can service current and potential mining projects across the region are well addressed in this arrangement.
Apart from infrastructure, other aspects that are important for effective development of the mining sector through beneficiation and value addition include tax laws and incentives, requisite skills in different areas, research and development and innovation, financing instruments, and transparency initiatives among others. Again, though these are mostly for implementation at national levels, SADC’s regional instruments can go a long way in promoting their effective implementation at that level or indeed harmonisation of policies and laws across countries where necessary. The SADC Protocol on Mining, which entered into force in 2000, exists to play this function. This Protocol is currently being reviewed to reflect the current thinking around exploitation of mineral resources in the region. Apart from this review process, the Southern Africa Resource Barometer has also been formulated by the Southern Africa Resource Watch in partnership with the SADC Parliamentary Forum. The Barometer aims to measure, monitor and evaluate the performance of countries extractive industries along respective value chains. It also sets out principles that can be used to direct the design of institutions for legitimate, transparent, accountable, inclusive and fair resource governance. Ideally, some of these principles will be written into the Protocol on Mining in a way that obliges Member States to establish and effectively maintain such institutions. The Southern Africa Resource Barometer would also ideally be included in the Protocol as the monitoring mechanism for resource governance in the region.
As it is domesticated into the national legal systems of respective Member States, the interaction of the Protocol on Mining with other SADC Protocols, international agreements and national laws is of significant importance. This is particularly so in the area of investment, given the capital intensity of the beneficiation process, and hence the role of foreign direct investment (FDI) in the process. At the regional level, investment is governed by the SADC Protocol on Finance and Investment (FIP). This Protocol includes provisions for the promotion and protection of investors and investments in the region such as protection from expropriation without compensation, fair and equitable treatment, and most favoured nation. The dispute settlement procedure provided for in the FIP where such rights are infringed highlights a number of important issues.
In the event of disputes between an investor and a Partner State, the FIP provides that such disputes can be referred for international arbitration if not settled amicably within six months, and after exhausting local remedies. The possibilities for international arbitration are provided as the SADC Tribunal, the Convention on the Settlement of Investment Disputes (ICSID), and the United Nations Commission on International Trade Law (UNCITRAL).
Of interest to note, however, is the fact that the jurisdiction of the SADC Tribunal has recently been limited to disputes between Partner States. This means that although the SADC FIP governs FDI across the SADC region, including in the mining sector, investors cannot bring any claims that they may have against a host Government to the Tribunal.
The fact that these investors have to exhaust local remedies means that national courts would have to interpret and apply regional legal instruments such as the SADC FIP and the Protocol on Mining, along with national laws governing investment and the mining sector. Such being the case, synchrony across these respective legal instruments is of vital importance and would need to be emphasised going forward.
In the event that local remedies are exhausted by investors, they would have the option of referring such cases to ICSID or UNCITRAL. These platforms have proved useful for the protection of investor rights over the years. However, the SADC FIP includes some other provisions such as the right for Host States to regulate in public interest including for the protection of health, safety or environmental concerns. With beneficiation and value addition of mineral resources, such considerations may become even more important. However, where such a provision is seen to be infringed by an investor, Partner States would only be limited to their national courts for redress. They cannot refer such matters to the SADC Tribunal or to ICSID and UNCITRAL, since these latter two forums only entertain references by investors and not Governments.
This scenario shows that, in its current form, the SADC legal framework is limited in its ability to holistically govern investment in the region, particularly where settlement of disputes by the SADC Tribunal is concerned. This and the other aspects of regional governance highlighted earlier would have to be given due attention as efforts towards mineral beneficiation and value addition proceed.