Africa holds a huge proportion of the world’s natural resources. The African Development Bank estimates that 30% of the world’s mineral reserves, 8% of the world’s natural gas reserves, 12% of global oil reserves are found on the continent. It is therefore not entirely shocking that extractives are a major source of revenue for many African countries and that demand for these natural resources remains untamed. According to the United Nations Environment Program, the amount of minerals, fossil fuels, and biomass consumed globally per year could triple between today and 2050.
This episode features Paul Lwiindi, an industry expert from Zambia in the extractives sector with a career spanning over 20 years. Paul has held senior roles in Glencore’s Africa operations, national roles in the UK’s Network Rail Infrastructure Limited and a pan-European role at Coca Cola Great Britain & Northern Ireland among others. Paul’s particular focus in the roles he has had is on operations and transformation and change.
Paul speaks about why a multi-sectoral approach by the government and private sector natural resource companies is critical to enhancing the extractives industry on the continent. Paul also gives insights on what African governments and other stakeholders can do to enhance transparency in governance of the sector, improve environmental performance of the extractives industry on the continent generally and what measures African countries can take to increase participation in the extractives value chain.
*The transcript below has been generated through software, and may contain errors. Viewpoints with Brenda is designed to be heard. We strongly recommend that you listen to the episode for context and speech emphasis before quoting the text below in print.
BN (00:22): Africa holds a huge proportion of the world’s natural resources. The African Development Bank estimates that 30% of the world’s mineral reserves, 8% of the world’s natural gas reserves, and 12% of global oil reserves are found on the continent. It is therefore not entirely shocking that extractives are a major source of revenue for many African countries, and that demand for these natural resources remains untamed. According to the United Nations Environment Program, the amount of minerals, fossil fuels and biomass consumed globally per year could triple between today and 2050. So how best can we as Africans manage our natural resources while at the same time increase our participation in the value chain, promote the use of our own resources and protect our environment?
BN (01:07): On today’s podcast, I’m joined by industry expert Paul Lwiindi to chat about these issues and the extractives industry in Africa generally. Paul has a career spanning over 20 years in a number of industries including mining, investment management, rail, information technology, telecoms, and fast-moving consumer goods. Paul has held senior roles in Glencore’s Africa operations, national roles in the UK’s Network Rail Infrastructure Limited, and a pan European role at Coca Cola Great Britain and Northern Ireland, among others. Paul’s particular focus in the roles that he has had is on operations and transformation and change. So, Paul, welcome to the podcast. Tell us a little about yourself and what got you into natural resources and extractives.
PL (01:54): Thank you, Brenda, thank you for having me on the podcast — I’ve been looking forward to it. I started my working life as a chartered management accountant some 20 years ago and have tended to work in infrastructure-heavy environments, such as rail, telecoms, and natural resources. I developed early on in my career an interest in asset management and investment. And today, it’s probably fair to describe me as a businessman with interests in natural resources. How I got into extractives, quite accidentally, actually. So, after spending years in Europe, I felt the itch to move back to my home continent of Africa. And as things would happen Glencore, at the time, were recruiting at the start of the Africa copper expansion, I joined them. And after some time, with Glencore, we established with three colleagues Kalene Hill Resources with a specific mandate to invest in transformational natural resources business in Africa. And our objective number one is to create African led businesses of scale. And number two, have a positive impact on local society wherever we operate and through these things create an inspiring legacy.
BN (03:08): So, diving right into it — the extractive sector, which is oil, gas, minerals, and whatever else is coming out of the Earth is generally a multi stakeholder industry involving the state civil society and the market. Which of these stakeholders has the biggest responsibility to the community and why?
PL (03:25): The state sets the rules by which all the stakeholders in the industry in a particular jurisdiction should play by. So, to answer your question, it is the state but what we find in many countries is that capacity is lacking number one, to set the right rules, and to police these rules. So, protection of communities and other stakeholders that require protection usually tends to lag. It’s important, I think, as African governments accept in what investment to have those rules in place from the onset — it becomes a lot harder to change the rules midstream in an investment cycle. We’ve recently advised two African governments on exactly this. So, number one, how to structure transactions so that the country and communities around the investment benefit and number two, on how to set the regulatory environment, so it works for both the investor as well as government and other actors in the economy.
BN (04:32): Since revenues from natural resource extraction generally contribute substantially to GDPs, what can African citizens do at the grassroots level to improve governance of their nation’s resources?
PL (04:44): When you talk about revenues in the extractive industry, the focus generally tends to be around tax receipts and royalty payments. And I think we need to move away from that focus. What we require are generally private sector solutions that create an incentive for everyone to make sure that the system works. So, a good example is to have homegrown extractive support services industries throughout the value chain. So, you will find that when you have this, you generally tend to have enhanced governance levels at various levels in that value chain. But in order to achieve this support services sector, in the extractive industry, there’s need for deliberateness, both by the state as they set the rules, as well as natural resource companies, because they act as enablers and also allow for the access to capital, as well as act as incubators, if you like.
PL (05:44): A very good example of jurisdictions or countries where support services industries have thrived, is South Africa. I’ve been to many mine sites around the world, there isn’t one, I’m not kidding here. There isn’t one mind site that I’ve been to in the world where I have not found a either a South African firm doing support work or a South African. And I’ve been to mind sites in the Arctic Circle in Australia, in Mongolia, right here in Africa. And the reason they’re able to do that is that the support services industry in South Africa has grown to the extent that they can now focus outward and start to export. So, from an overall economy perspective, they tend to have a counter cyclical effect, as you know, commodities tend to be cyclical in nature.
BN (06:35): Extractive operations are often socially very sensitive. In your view, what can African governments and other stakeholders do to enhance transparency in governance of the sector?
PL (06:46): There’s been significant progress made in the industry for over the years in terms of getting enhanced transparency. And these efforts range from voluntary initiatives such as the Extractive Industry Transparency Initiative, EITI as well as enhancements in legal frameworks that have a long jurisdictional reach in the markets where a lot of these commodities are traded and go. And because of that, I have seen a number of actors in the industry, from multinational corporations to government participate in these initiatives, and there’s generally a lot more data available. But also, I think a lot more organizations are being held to account. And there’s a realization that actually transparency is the better way to ensure growth of the industry and also continue social license to operate if you like.
BN (07:42): Moving on to the very sticky topic of the environment, extraction of natural resources will always naturally impact the environment resulting in damage to the ecosystem contributing to degradation and so many other things. What can be done to improve environmental performance of the extractive industry on the continent?
PL (08:01):There are two parts to that question. One relates to the global movement around the environment and care for the environment, I think that movement has gained ground. There’s a lot more focus on doing and behaving in a way that is sustainable and that is good for the environment, in relation to Africa, specifically, and natural resource companies. Number one, the key I think, is policing, by various environmental agencies around those jurisdictions. But again, what we tend to find is they lag in terms of their ability to police environmental effects that fall outside the acceptable parameters. So, to the extent that they can be strengthened, I think you get better environmental management and environmental management systems in NRCS on the continent. The second element, I believe, is in tandem with the general move, globally. I think many multinationals are behaving, the issues tend to be around the artisanal miners. And again, there’s no easy answer to how you enforce environmental standards for those groups. But I’ve seen significant progress in places like Ghana, being made where people understand that they do need to look after the environment for the operations to be sustainable. And also, we’ve had longevity on the continent, in the sense we can start to see cause and effect in terms of poor environmental practices of the past. So, I think to answer your question, the situation is getting better, more could be done regulation, as well as policing of that regulation needs to be enhanced and we need a multi sectoral approach.
BN (09:56): Do you think Africa gets a fair deal generally with extractives?
PL (10:00): That’s an interesting question, Brenda, because the question is premised on external inward investment, and therefore outward repatriation of benefits or profits. But it’s a premise that I’d like to challenge, because you do get within the continent, internal investment in natural resource sectors. Countries that tend to benefit more are those countries that have industrialized, and therefore more of the beneficiation happens locally and more of the use of the product happens locally. Large countries, like Nigeria, for example, are now starting to build their own refineries, which means that all produced in Nigeria can have value added locally. Countries like South Africa, which heavily industrialized tend to use more of that. So, they tend to get a better or a fairer share of the benefit throughout the value chain and throughout their economies. Countries with a low industrial base that suffer from what economists call the resource curse, generally tend not to, because they don’t have the industries to absorb those products, they instead get the finished goods as consumers, as you know, it’s a situation that’s kind of cut half in half, those that have industrialized, tend to do better those that have not less
BN (11:23): So, a little bit earlier on, you spoke about increased participation and African continent through homegrown support systems in the value chain for extractives. For as long as we’ve known foreign direct investment in Africa has almost exclusively focused on extraction and export of natural resources. So, what can Africa do to participate more in refining our natural resources so that the entire value chain is on the continent as opposed to us just exporting the raw materials?
PL (11:51): Ironically, it’s a focus away from natural resources that tends to benefit countries more. Those that have tended to focus only on the single resource without actively diversifying their economies tend not to do well or get a larger share of the benefit. So again, it points to things like industrialization, because then you have multiple actors, and multiple value chains that make use of the extractives products that are produced. It’s not an easy thing. I think that countries that have been trying to diversify for the last 30 ,40, even 50 years, those that have been deliberate about it and have been consistent, have tended to do much, much better in that respect. There’s a lot of innovation happening, particularly in services, and to some extent in science that makes use of these things in a sort of limited way. But I think we need to do a whole lot more in promoting STEM — science, technology, engineering, and mathematics in schools. And to create the right environment where we can incubate, we can have innovation start to grow. I’ve seen in my travels around the continent, countries that are doing particularly well. I mean, everybody talks about Rwanda, these days, and Rwanda is doing well, it’s become the darling if you like in the continent, in terms of companies and countries that want to trial new products. South Africa has always been. I think there’s a lot of innovation and development coming out of Nigeria, and East Africa. So, Kenya is one as well. So, I think over time, we will start to see more and more use of our own resources locally in Africa. But I think it’s a journey that we have to travel. And that journey unfortunately takes time for it to be sustainable.
BN (13:48): Thank you so much, Paul, for coming onto the podcast and for taking the time to share your wealth of knowledge around the extractive sector generally, it’s been quite an enlightening discussion.
PL (13:58): Thank you, Brenda. Thank you for having me. I think it’s a great platform. I hope that you do continue promoting it and promoting the continent that we all dearly love.