Indaba Day 1: The Power Of The Mine As A Transformative Opportunity, Plus Pessimism From A Keynote Speaker

By Mark Nunn at CSR21.org

The CSR21 team convened in Cape Town this weekend for that hoary old institution of the Mining Indaba – ‘Indaba’ being a Zulu or Xhosa word for ‘a gathering of the izinDuna, or principal men.’ We can attest on today’s experience that the gathering part is 100 per cent accurate, but in a welcome gesture to the 21st century there are a good number of principal women here too – not least distinguished economist Dr Dambisa Moyo, of whom more later. CSR21’s two-man team of principal men this year is half-veteran half-virgin, your correspondent happily filling the latter post and manning the live coverage.

Also, it’s exciting to be somewhere where the tea breaks are sponsored by Lockheed Martin.

Two talks took up a morning sponsored by the World Bank, and Dr Moyo’s Economic Keynote Address was the focus of the afternoon.

The first session, “the Power of the Mine,” doubled as the launch of a World Bank report on the same authored by Surdeshna Ghosh Bannerjee, who moderated the session, and her colleagues at the World Bank. The rest of the panel was similarly heavyweight: Cyprian Chutundu, Managing Director of Zambian power supplier Zesco; Dr. Anthony Hodge, President of ICMM; Anita Marangoly George, Senior Director of Global Practice on Energy & Extractive Industries at the World Bank; Mark Bristow, CEO of Randgold; Guinean Minister of Mines and Geology H.E. Kerfalla Yansané; and Nii Osah Mills, Ghanaian Minister of Land and Natural Resources.

First up, via the informative medium of video, a few key facts framing the discussion: none of the power so far generated by African mines has made it onto national grids; the World Bank thinks mining companies could become ‘anchor consumers’ whose reliable demand could help expand and stabilise those grids; and Anglo CEO Mark Cutifani believes that there aren’t many physical barriers to achieving those wins and other ideas that benefit companies and communities; only a current lack of flexible government policy is holding them back.

Anita George spoke first on the necessity of power to job creation, education, health and development. “Fewer than 50% of Africans will have power at home by 2030,” she said, “if we continue business as usual.”

She argued that Africa has no better “anchor customer” won which to build the strength of the power industry than the mining industry; and yet mining companies are predicted to spend up to US$3 billion by 2020 to supply their own power – none of which currently makes national grids. Domestic power infrastructure is weak not least because of a lack of transmission links, because of poor enabling environments for independent producers, the fragile commercial viability of electricity utilities, and the unmet need for cost recovery tariffs.

Next up was Sudeshna Ghosh Bannerjee, Senior Economist at WorldBank Group and first author of the report, who outlined the transformative opportunity offered to Africa by the mining industry. New metrics developed for the report suggest that mining demand for power could be up to 23 gigawatts by 2020.

“Self supply,” she argued “is a loss for all”: though it can be overwhelming in some countries, and despite the fact that commodity price volatility can destabilise mining demand for power, mining demand can benefit national infrastructure and unlock clean energy (e.g. hydro) in grid arrangements. Policy makers, she concluded, have key roles in making this all come to fruition.

Then the panel discussion started. As is the way with such things it covered a lot of ground. Key points included the positive case study of Ghana’s Akosombo Dam, the mining-related arrangements around which were “crucial to the early stages of Ghanaian economy,” according to Minister Mills. “It made it possible to electrify country… A win-win – we earned FX from mines; shed extra power to mines; generated taxes; and it was crucial for development too.”

Provision of power and knock-on effects like freedom from collecting firewood and similar tasks provided a significant boost to overall progress. He emphasised particularly the fact that mining companies paid foreign exchange for power which he saw as a key gain for Ghana. “This report,” he said, “is bang on.”

The downside of the relationship between governments, power providers and mines was explored by the MD of Zesco, Zambia’s provider, who explored cost recovery issues. While the Zambian power Industry has grown on the back of copper mining, he said, it is currently “held back by bad supply agreements… very low long term tariffs agreed with companies in the 1990s.” Accordingly, when the price of copper later took off, the power industry failed to benefit, so Zambia had to recourse to World Bank. The country, he concluded, was in need of (a) dialogue leading to mines paying cost-relative tariffs; and (b) synergy, currently lacking, between mines & independent producers. The general preference of mines to deal with public utilities is currently preventing this from happening.

A number of other issues were addressed in a lively discussion (not least George’s contention that hydro power infrastructure projects in DRC have “the potential to light up the whole continent”, but the ultimate consensus was clear and positive: the mining industry’s power needs can be a game-changer for mines, countries and citizens.

Later, Dambisa Moyo, popular economist and contrarian, gave the afternoon keynote in the very impressive main hall. She started with a snap poll – who’s optimistic about the world and reckons next 20 years will be good? Evens in the room, but she came with a message of doom.

Economist Dambisa Moyo

Everything, she said, is going to be bad – (assuming we are sited somewhere on the familiar economic ground where endless growth is what is good). The biggest risk, she said, “is that which you can’t see today.” Fair enough… but then she went on to spend 45 minutes telling us what she could see. And none of it was good.

In short, growth at pre-2008 levels will never be seen again; political instability will rise; development will suffer and demographics will only enhance that suffering. “”Growth has to be seven per cent in order to make a meaningful dent in poverty,” she argued.

Bearing in mind the huge bias in favour of under-25s in the developing world and the exemplars of Nigeria, Venezuela, Indonesia, etc. struggling with weight of populations for which they can’t create growth, “by 2025 80% of the world population will be living in fragile, politically unstable states.”

There’s also growing scepticism re globalisation, with growth inequality a big problem. The world consensus is globalisation requires free markets and free people; but while China has neither and the USA has both, the two countries have the same GINI coefficient of about 0.47. And while China’s income inequality has continued to improve, that of USA has gone the opposite way. “What, “she asked, “does this mean about our ability to create growth?”

This led to the interesting argument that from an economic point of view democracy is overrated. Displaying a tendency to cherry pick her examples she cited Pinochet, Fujimori and Lee Kwan Yew show as proof that democracy isn’t needed for growth. Pre-World Cup riots in Brazil and the situations in Turkey and Ukraine were presented as proof of rising global instability; but we had trouble swallowing this. Does Brazil riots+Turkey+Ukraine really equal the end of development? After all, the 1990s had the Gulf, the Balkans and Rwanda…

The more serious point, though, was an inverse one: the ability for democracy to survive over time is highly correlated with per capita income. And growing that is going to be a problem.

The future is increased protectionism; decreased cross-border flows; rising financial repression and the rise of the state. Technology will erode jobs and all of these trends are set to continue. Globalised businesses will become more significantly siloed and individualistic as cross-border investments are increasingly challenged by host governments. Capital flows to fall and it’ll get harder to repatriate returns on investment in foreign jurisdictions.

The answer to the question was left begging, really. What will it take to be successful? A very big army, perhaps. Hard to tell. It could be that this is prescient stuff: though the manner in which the argument was put left us wanting a touch, the logo was sound and the picture – while unpleasant – not in the least unimaginable. The world has shown a wonderful ability to ignore the dangers in the past; it’ll be interesting – at the very least – to see what happens over the next couple of decades, how right Dr Doom turns out to be, and what – if anything – those in the room end up doing about it.