Development or amputation? The role of extractive industries

How much is Africa benefitting from the extraction of its abundant resources?

Extractive industries' link to environmental destruction has been well documented, writes Manji. [AFP]

We hear so much nowadays about the contribution made, or that could be made, to development by transnational extractive corporations operating in Africa. There is no doubt that resource extraction is a critical sector within African national economies. But what is its real contribution to development? In my view, we should consider extraction of non-renewable resources as being equivalent to amputation.

Africa is said to have 10 percent of the world’s reserves of oil, 40 percent of its gold, and nearly 90 percent of the chromium and the platinum metal group, with probably much more yet to be discovered.

Natural resource extraction contributes more that 30 percent of Africa’s GDP. According to a McKinsey report, resource extractive industries “will continue to profit from rising global demand for oil, natural gas, minerals, food, arable land, and the like. … The annual flow of foreign direct investment into Africa increased from $9 billion in 2000 to $62 billion in 2008 – relative to GDP, almost as large as the flow into China”, most of it into the extractive industries. 

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However, according to Carlos Lopes, the executive secretary of the UNECA, “Average net profits for the top 40 mining companies grew by 156 percent in 2010 whereas the take for governments grew by only 60 percent, most of which was accounted for by Australia and Canada.” He points out that the profit made by the same set of mining companies in 2010 was $110bn, which was equivalent to the merchandise exports of all African LDCs in the same year. “It is fair to say therefore that the resource-to-development model puts raw materials suppliers at a significant disadvantage. The conclusion that can then be drawn from this situation is that the current resource-for-development model is not working to bring about equity or boost development.”

Nevertheless, the belief endures that with proper management, African countries could still benefit from opening their territories to the extractive industries. For example, Lebogang Motlana, the Director of UNDP’s Addis Ababa-based Regional Service Center for Africa claims that, “The [extractives] sector provides huge opportunities for sustainable development and poverty reduction if properly managed with the right mix of policies and enforcement systems in place.”

The contribution of extractive industries to environmental destruction and to climate change has been well documented elsewhere. The apparent profitability of these industries is due to the fact that they externalise those detrimental effects: They don’t take account of the costs associated with environmental damage.

But I believe that there is a fundamental dimension about natural resource extraction that has been ignored both by the proponents and opponents of the extractive industries.

In (almost) every instance of resource extraction, we are dealing with extraction of non-renewable resources. In such cases, the word extraction is really a euphemism for amputation. As any dentist will tell you, once you extract a permanent tooth, there is no natural replacement. It is an amputation.

Now consider an economy in which more than 30 percent of the GDP is attributable to resource extraction, or more accurately, resource amputation. This is like saying: “We are going to amputate a third of your body. Sure, we will pay you for cutting off parts of your body and selling these on the market. Of course we will make profits from this investment, but you will benefit because we’ll compensate you with a nominal amount that will contribute to development and poverty alleviation (provided you don’t tax us too much).”

When expressed in such terms, it sounds absurd, ludicrous. Yet isn’t that fundamentally what is going on? Whatever euphemisms we might use for extraction of non-renewable natural resources, the fact remains that it is a form of amputation. It is hard to accept the argument, therefore, that such amputation leads to development. Let me cut off your leg so you can walk better?

I believe that we have to start referring to the extractive industries by what they really are – amputative industries – so that we are clear about the extent to which we are giving away our future.

Looked at from this perspective, it is hard not to agree with Nnimmo Bassey’s famous saying: “Leave the oil in the soil, the coal in the hole and the tar sands in the land!”

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Experts looking at the amputative economy might argue that the problem is that we need, as Carlos Lopes puts it, to “rectify some of the initial problems that have continued to plague the management of the continent’s natural resources. At the fore of this endeavor is the capacity of governments to get the best deals for their countries during contract negotiations.” In other words, we need to be strong enough to argue for a greater share of the profits arising from amputations.

Given how much has already been mined from Africa and how much is stockpiled outside the continent, there is perhaps a case for ceasing further exploitation of our natural resources.

Real development will only be possible if these amputative industries are controlled not by transnational corporations and speculators on the stock exchanges but by citizens, for these natural resources belong to the commons. The income derived from controlled and limited exploitation can then be invested in sovereign value-adding manufacturing and services sectors that are geared to meeting the needs of the majority.

Amputation cannot be taken lightly. Sacrifices of this kind should be made only where there are demonstrable and significant benefits that materially contribute to breaking Africa’s dependency on the North and breaking its position as exporter of primary products for satisfying the need for super-profits of international corporations and financial institutions.

Firoze Manji works with ThoughtWorks as director of the Pan-African Baraza. He is the founder and former editor-in-chief of Pambazuka News. He is the editor, with Bill Fletcher Jr, of Claim No Easy Victories: The Legacy of Amilcar Cabral.

Follow him on Twitter: @firozem