State participation in the mining sector is a throwback to the socialist mind-set that once formed the premise of many national companies. Few West African nations have contemplated setting up an organization to oversee and harness their country’s natural resources. The free market system has trumped state sentiment in ensuring that the sector is managed effectively and efficiently by private companies whose main aim is to create shareholder value.
In Africa, there have been several attempts to establish state-owned organizations to oversee the commercial development of natural resources. In 1986, Burkina Faso established the Comptoir Burkinabe des Metaux et Precieux. Structural Adjustment Programmes brought operations to a grinding halt. Globally, state-owned enterprises have seen two renaissance periods: initially in the 1960s and 1970s and recently in the early 2000s with Chinese companies taking the lead. Fears about the efficiency of how the states have been run have been the main sticking point for many critics.
Although no West African country has, or has had, a state-owned mining corporation, we should not dismiss the model as being archaic or ineffective. The DRC’s state-controlled Gecamines has adopted a model which allows for private participation. It allows the government to retain a stake in its mines while accruing the benefit of private sector expertise. In South America, there is the state-controlled and Chilean-based Codelco, which has successfully navigated through national politicking to remain a mainstay. The countries where state-controlled organizations existed have benefitted from legislation and regulations that allow for private enterprises to co-exist in a cohesive environment, which in turn leads to growth. The private sector provides experience and technical expertise, while also not being hampered by politics.
Government must also understand its role in laying a foundation for the commercialization of its resources, rather than meddle in the affairs of private enterprises. The Debswana model in Botswana serves as a good example of a successful government and private partnership. The temptation for government to meddle in the affairs of business threatens to disturb the very fibre of the business, potentially making is a commercial disaster.
Zambia’s copper industry is an example of government poking its nose where it is not needed. Though, through no fault of their own, the price of copper plummeted to a 20-year low at the time of the state-owned corporation’s closure, the government was forced into selling its assets at a loss.
Many advantages can come with a state-owned mining company, such as having the backing of a government, but governments often don’t have the requisite technical expertise. In the past, African countries with state-owned mining companies have lacked the commercial nous to navigate through trying times and have had to resort a fire sale of assets.
Investor confidence is built on the stability of a government. Also, a private company needs to know that the government will not move the goals posts to suit their own agenda.
The ability to navigate through the volatile terrain of the mining sector, where the prices of your resources are dependent on world events and driven by consumption, requires a strong hand from government to mitigate other uncontrollable factors, such as demand for metals, prices, as well as macro and micro economic factors. The objectives should also be clearly set out to ensure that the majority and not a handful feel the benefit of resources.
With the support of the World Bank, Nigeria’s mining sector may thrive. The World Bank’s work with the government can strengthen the sector and see mining become a key component in the revitalizing the nation’s fortunes. Despite Nigeria not hosting any international mining companies, by helping local mining companies, who to date are have received little assistance from banks, remains the country’s best bet.
This support can kickstart the growth of Nigeria’s mining sector and replicate the success of their West African neighbors. – Written by Richie Seun Johnson