Export controls and competitiveness in African mining and minerals processing industries
The minerals and metal sector in Africa is heavily affected by export control measures of raw materials. Export control measures are amongst the tools which governments employ with the aim to encourage local processing and capture more of the value flowing from minerals extraction.
By putting restraints on the export of raw materials, governments hope to divert these materials to the domestic market, thereby supporting local activities to process these materials and employment. But export restrictions can also have costs for countries employing them; in particular, they can lower the returns on raw materials production and entail efficiency costs for the economy overall.
The four case studies selected for the analysis concern the manganese sector in Gabon, the primary and secondary lead sector in South Africa, the copper sector in Zambia and the chromium sector in Zimbabwe. These cases cover a variety of conditions: they concern different types of minerals (base metals, minor and technology minerals), employ different kinds of export control policies, and the number of potential downstream activities differ significantly.
The report describes developments in the industries over a 20-year time span from 1992 through 2013. It examines the revealed comparative advantage and uses structural break methods to determine whether changes have occurred in the relative competitiveness of raw and related processed products and whether these could be attributed to export control measures. The focus of the analysis is on the processing at the early stages of the value chains of these industries.
The selected countries differ in the level of vertical diversification achieved in the course of the twenty years studied. All of them have a comparative advantage in the mined metal, but their export performance in processed products is weak or at best very narrow. This report finds that export control measures on raw materials have not promoted downstream processing activities in either of these countries, and in some cases have led to substantially negative effects on the primary sector.
In the minerals and metal sector the availability and price of the primary (and secondary) raw materials are key determinants of production at subsequent stages of the value chain. However, availability and price alone are not sufficient conditions for processing to take place on a globally competitive basis. Minerals processing industries typically consume large amounts of energy and water and employ a high skilled labour force. Proximity of sales markets and the state of infrastructure influence transport costs, another important co-determinant of global competitiveness.
A growth and jobs strategy founded on export restrictions on raw materials risks to overlook other domestic factors that are equally important to achieve global competitiveness on a sustainable basis. A systematic stocktaking and comparative analysis of the overall enabling environment seems well advised.
The analysis finds that the export control measures may have affected the mining industries, and that the effects have been adverse overall and the processing industries have not benefited.
The export control measures studied consist of export taxes, export licence requirements and outright export bans. The export tax policies pertained to the copper industry (Zambia), chromium industry (Zimbabwe) and manganese industry (Gabon). For Gabon’s manganese industry there is no evidence that the export tax has impacted the levels of comparative advantage of the mining or processing activities. In the case of Zambia’s copper industry, the revealed comparative advantage of copper ore and concentrate decreased, suggesting that the mining sector may have been hurt by the export tax. Zimbabwe’s chromium ore sector has witnessed a similar deterioration.
While these findings are in line with what trade theory would predict to be one of the consequences of export taxes, the export performance of the countries’ downstream processing sector has also not benefited. Diversification within the Zambian copper industry’s value chain predates the 15% export tax of 2008. After the export tax was introduced, the RCA index rose for only one semi-processed copper product, anodes, to which the export tax also applied. For Zimbabwe, the effect of the export tax is difficult to disentangle from the effect of the preceding and subsequent bans, but the RCA of chromium dropped sharply whereas ferro-chromium exports have not seen any improvement in relative competitiveness. The rates of the export taxes were relatively high in Zambia and Zimbabwe (15% and 20%, respectively), which could help explain the pronounced decline of the revealed comparative advantage of their extractive sectors. The fact that this decline has not been offset by competitiveness gains for the processing industry does not bode well for the countries’ respective copper and chromium industries and their contribution to economic growth and development.
Zimbabwe’s export ban has backfired and some important lessons can be drawn from this case. It is reported that when the ban was introduced producers of chromite ore had difficulties finding local processors. Unable to sell abroad and locally, some mining operations closed down completely. This is not in the interest of the economy, which depends on the mining sector for foreign exchange, and not a circumstance that the government appears to have thought of when it imposed the export ban – the strictest of all export control measures – hoping to attract investment in the country’s smelting capacity and further up the value chain. Furthermore, the Zimbabwe case illustrates that the actual trade effects depend crucially on the enforcement of trade measures.
South African lead industry is the only country case where producers have to obtain a licence in order to be able to export lead and a wide range of other minerals. Like with the export tax in Zambia, the export licence requirement applies to mined output as well as to some semi-processed products. The requirement was implemented in 2008 followed by a structural decline in the comparative advantage of lead ores in 2010, but this is a relative long time lag for a cause and effect relationship for an export control measure. Neither is there evidence that export of lead waste and scrap or any other lead products included in the control list, as administered prior to 2013, was effectively restrained. The structural decline in the competitiveness of several semi-processed products appears to be related to cost and possibly other factors depressing demand for scrap on the part of the South African lead using industry.
In the light of the findings, it is hard to defend export restrictions as a tool for stimulating local mineral processing. There was no improvement in the comparative advantage of semi-processed products, which would have benefited from the measures taken. South Africa, Zambia and Zimbabwe all have developed smelting and refining competences and positioned themselves as exporter of certain semi-processed products, but these achievements cannot be attributed to the export control measures studied, which did not improve the relative export performance of these products. On balance, the export restrictions may have undermined the overall performance of the industries in Zambia and Zimbabwe because the relative export performance of their mining sectors weakened.
From the description of the industries provided by this paper it is apparent that factors other than export control measures have also shaped the situation in the countries’ minerals sector. The finding that the export control measures have not helped the processing industries raises the question of what mix of basic conditions are needed for strong processing sectors to develop in these countries.
For industries strung along the value chain, raw materials are a necessary input and availability and price of the primary (or secondary) raw materials is a key determinant of the cost and levels of production at subsequent stages of intermediate products. However, this is neither a sufficient condition for processing to take place nor is it the only factor that determines whether processed products can compete on the global market.
This study was prepared under the OCED Working Party of the Trade Committee by Ernst Idsardi and Riaan Rossouw of the North-West University in South Africa.