Extractive Industry (EI) Management ____________________________________________________________ Issues and Challenges & The Role of the ADB Presentation by G. NEGATU Ag. Manager, Governance Division (OSGE.1) African Development Bank Tunis, TUNISIA

Defining Natural Resources Natural resources are “gifts of nature”. They are classified in three main groups : –Renewable (land, water, forestry, fisheries) –Non-renewable (minerals, fossil fuels, metals) –Non-depletable (wind, solar, energy)

The ADB and the EI Sector Traditionally financed lending/non lending operations Currently involved in private sector operations related to extraction of Natural gas, Minerals, Gold, Titanium, Copper, Alumina, Platinum, Coal, Zinc The Bank Group…. –Ensures transparency through its due diligence work; –Ensures environmental & social protection through safeguard measures; and –Fights corruption & promotes good governance through sector specific anti-corruption measures. The Bank Group is also developing a new strategy to guide its engagement in the sector.

Background & Context of Sector in Africa African countries increasingly dependent on natural resource exploitation to finance Development and progress in MDGs Several RMCs are joining league of oil economies and mineral exporters (Uganda, Sudan, Sao Tome and Principe, Mauritania, Tanzania) Heavy dependence on EI has political and economic risks: –Commodity price volatility in global market; –Low income elasticity of world demand – low revenue; –Creates enclave economies; with few linkages to the rest of the economy.

Overview of EI Management in Africa Political Issues: –Powerful & corrupt vested interests; –Conflict over ownership/exploitation rights (Sudan, Angola/Cabinda, Niger Delta); and –Illegal exploitation of resources (logging, oil theft). Economic Issues: –Economic distortions (Dutch disease); –Enclave nature of activities (lack of linkages to economy, foreign ownership); and –Lack of corporate social responsibility.

Overview of EI Management in Africa (cont.) Environmental Concerns: –Over-exploitation (timber in Ghana and Cameroon, Copper in Zambia); and –Ecological degradation (strip mining, gas flaring). The Globalization Factor: –Intense geo-political competition for natural resources–India & China with limited resources and insatiable appetite; implications for price and standards

Overview of EI Management in Africa (cont.) But all is not lost …… –Some RMC are managing their natural resources well (Botswana, South Africa, Morocco, Namibia) Key lessons : successful harnessing natural resources for growth and poverty reduction depends on: –Sound management & regulatory practices; –Good governance & institutional capacity; –Respect for the rule of law; and –Good infrastructure

Key Challenges for NRM in Africa Irreversibility of losses and conservation need determined by: –Traditions; –Property rights enforcement; and –Preference for the present relative the future. Creating viable, integrated, and diversified value chain that sustain wealth and guard environment. Prudent investment of windfall revenue to diversify economic base and ensure predictable revenue flows

Key Challenges for NRM in Africa (cont) Equitable distribution of benefits –National versus regional and local; –Inter-generational equity; present vs. future generations –Targeted Pro-poor interventions & outcomes Implementation of good governance and sound macroeconomic policies to: –Curbing rent seeking and corrupt practices; –Manage foreign exchange rate escalation—Dutch disease –Stabilization of revenue volatility and diversification; Building domestic capacity: technical and managerial capacity for domestic natural resource management

Way Forward & The Role of the ADB Dialogue on Economic Management: –Policy dialogue on effective revenue stabilization and expenditure management through (DBS, CSP, CGP). Governance & Institution Building: –Enhanced ADB governance programming to promote transparency, accountability & decentralized revenue sharing. –Building capacity in sector ministries & local governments to improve NRM, accountability & transparency of revenue management, legislative capacity to create an enabling environment & promote stakeholder participation; all done through ISP, TA, DBS, SWAP, Grants

Partnerships for Regional Effectiveness Local Level Partnership: with stakeholders to build capacity to manage natural resources, curb corruption & reduce conflicts Regional Partnership: because many natural resources span national borders and create inter- jurisdictional externalities; to complement regional agreements/initiatives (NEPAD/APRM); for better harmonization of laws, instruments & support programs International Partnership: to promote transparency, combat corruption and reduce possible conflicts; develop joint strategies to implement and enforce international standards and treaties; and promote corporate citizenship and reduce trade barriers Government, Private Sector & Local Stakeholders Partnership for effective agenda setting, informed participation up-stream in the management of resources and revenues, and accountability pacts

….Partnerships (cont.) Knowledge sharing & best practices –Generate relevant and timely knowledge on developments in cutting edge technologies. –Distill lessons and best practices in the sectors, based on regional and global experience. –Convene other development partners around a harmonized and coordinated regional strategy and action plan for building capacity in the EI sector.

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