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Saturday 19 January 2019
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Transforming Mineral Wealth into Industrialisation

Africa, as a continent, has an abundance of natural resources, with minerals within the mining and petroleum sphere topping the charts. While not all countries are commodity-rich, the continent nonetheless holds 12% of the world’s oil reserves, 40% of its gold, and 80% to 90% of its chromium and platinum. In Namibia, particularly, the mining sector has historically been the main driver of growth in the Namibian economy, with the country being known as a global player in commodities such as diamonds and uranium.
As foreign investments increase within Namibia in order for her to realise her mining potential, it is unfortunate that the majority of her raw material is being exported to booming economies such as China to be transformed into products that are sold back to her at exorbitant prices, in certain instances. The country is, therefore, unable to fully realise the true worth of her raw materials, as mineral wealth is yet to be transformed into industrialisation and widespread economic development. The question therefore remains: Can natural resources pave the way to Namibia’s industrialisation?
 
In answering the above, a recent read titled “Why Nations Fail: The Origins of Power, Prosperity and Poverty” by D. Acemoglu and J.A. Robinson came to mind. In this book, the authors argue that in order for a State to prosper, it needs an “inclusive political institution” and “inclusive economic institution”. More specifically, the difference in institution determines a State’s economic success, such as the rules that influence how the economy works and the incentives that motivate people. Inclusive economic institutions guarantee prosperity for the masses by providing a degree of infrastructure that is necessary for economic growth such as enforcing private property rights, contract rights for all (and not just a majority), education and physical infrastructure such as roads and railway. An extractive economic institution, on the other hand, exists in a State that extracts wealth from one subset of the population to another (similar to slave and colonial systems), thereby failing because it does not create the incentives to save, invest and innovate.
 
As a point of departure, the roots of political and economic institutions lie in the colonial period where apartheid institutions were established for a white elite to extract wealth from the country. Fortunately, as a country, a broadly inclusive political system was in existence pre-colonialism in the sense that any individual could rise up to become head of one of various chiefdoms in the region with the will of the people. The fact that this was not hereditary but meritocratic meant that the principal of ruling with the will of the people and on behalf of the people had been established for generations. When Namibia gained her independence, this inclusive political system was to a certain extent embodied in her DNA, as evident from the gruelling liberation struggle. However, from an economic perspective, the boom in minerals caught her unprepared with policy uncertainty topping the agenda.
 
In order for minerals to pave the way for industrialisation, an inclusive policy and legal framework needs to be in place to accommodate the technological change required to bring industrialisation. This technological and technical know-how, for now, will be highly influenced by foreign investment as technological change is the engine for economic growth through industrialisation. It is clear that governments have an important role in creating a supportive policy and investment framework that is essential in attracting long-term investors through policies that build local capacity and address inequality. However, one cannot ignore the pivotal role of the private sector in attracting this sought-after foreign investment, who more often than not indulge in the historical rent-seeking attitude that results in short-term revenue gain, as opposed to long-term value addition. But who is to blame them? After all, why attract a foreign investment targeted at a long-term industrialisation strategy if the government does not have the policies in place to synergise with the industrialisation tone. That is why the term “middleman” is so prolific in Namibia and in particular within the mining and petroleum spheres, with Exclusive Exploration Licences (EPLs) being traded and sold for short-term gains within the private sector.
 
Therefore, policy regimes affecting economic growth should be put in place to encourage the private sector to feel motivated in attracting industrialisation-targeted investment opportunities that would see our precious raw materials processed in Namibia and exported as finished products. The collaborative effort between the public and private sector is paramount in achieving this, where an ethos similar to Africapitalism should be emulated. Africapitalism is an economic philosophy created by Nigerian businessman Tony Elumelu advocating that the African private sector has the power to transform the continent through long-term investments, creating both economic prosperity and social wealth.
 
Similar to Africapitalists such as Elumelu, Namibia’s “Nampitalists” should use their “middleman” influence within the international investment sphere to ensure that they attract foreign investments to support long-term projects centred around industrialisation within Namibia as regards our raw materials. This can, however, only be achieved if government transforms its economic and political institutions to ensure that the policy and legal frameworks are in place to accommodate such industrialisation attractions. More so, infrastructure relating to transportation (e.g railway, roads and harbours, energy and water, as well as developing skills through training and incentives that ensures the local economy grows and diversifies through industrialisation needs to be put in place by the government.
 
Where technological change is the engine of economic growth, a by-product of that change is social change. Change, however, involves winners and losers, and existing elites may resist changes that make institutions more inclusive for the greater prosperity of all if it results in less prosperity for them. The internal house of the Namibian government should therefore get its ducks in a row, both individually and collectively, for natural resources to stand any chance of paving Namibia’s industrialisation. Incentives for people to invest and innovate in the drive for industrialisation should be created (e.g guaranteeing property rights), and policy and infrastructure required by the private sector to enable investment and growth for industrialisation should be in place. Importantly, the State needs to be controlled by its citizens, rather than monopolised by a small elite. Only then, can mineral wealth be transformed into industrialisation and widespread economic development.
 
*Stanley Kambonde is the Founder and Managing Director at Esel Kay Consultancy, a consulting and advisory firm specializing in the natural resource and energy sectors. He holds BJuris and LLB (Honours) degrees from University of Namibia, and an LLM in Oil, Gas and Mining from Nottingham Trent University, UK. He can be reached at skambonde@gmail.com



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