Many African countries are trapped in commodity dependence, relying heavily on a few raw materials for most of their export earnings. This makes them extremely vulnerable to the volatility of world commodity prices and market vagaries. The need to diversify their economies is crucial in order to achieve a sustainable development. In fact, one of the biggest development challenges for Africa is to move away from exporting raw materials and start moving up the value chain in a sustainable manner. The EU’s raw material policies threaten to lock in African countries as raw material exporters, contrary to the objectives of EU development policy.

The struggle for the world’s raw materials is intensifying. The demand for metals and minerals have increased dramatically during the last years, as emerging economies such as China, Brazil and India are in desperate need for raw materials for their growing industries. The EU is highly dependent on imports of strategic minerals and high-tech metals. Such metals are used in computers, mobile phones, rechargeable batteries, flat
screens and many other everyday consumer products.

It is important to secure supply of raw materials for the European industry and development of future innovative technology, particularly the development of green technology and renewable energy. But the EU’s quest for raw materials must not undermine industrialization and development in African countries.

Africa is rich in natural resources. The continent is the world’s top producer of several of the most sought after strategic minerals and has among largest reserves in the world of many more. Despite their abundance in natural resources, many of these African countries are among the poorest in the world. The resource wealth of many African countries has the potential to transform their economies. But the countries and the local population have not been able to reap the benefits of the lucrative extraction of their resources.

The EU launched a new strategy on raw materials in 2008, which was followed up by a communication from the European Commission in February this year on how to implement the strategy. The EU warns in its strategy that it will work towards the elimination of measures in other countries that in their view are distorting trade. The EU will take “vigorous action to challenge such measures, using all mechanisms and instruments available”. Some of these measures are instruments that developing countries are using in order to promote industrialization and support downstream processing industries. The EU has, for example, tried to limit the use of export taxes and ‘restrictive’ investment rules by developing countries.

Resource-rich African countries apply export taxes on some of their minerals, with the objectives to encourage local value-addition and promote domestic processing industries. Ghana, for example, has an export tax of 6% on gold, bauxite and manganese and South Africa has an export tax of 5% on unpolished diamonds. The use of export taxes as a tool for industrial support and development is increasingly being discussed in the trade policy debate in African countries.

The EU has tried to introduce disciplines on export taxes in the WTO, but without success. In the negotiations with African countries on trade agreements, the so called Economic Partnership Agreements (EPAs), the EU has tried to ban, or at least severely limit, the use of export taxes, despite strong opposition by African states. The EU’s policy could undermine industrialization and prevent diversification of their economies. The EU’s strong push to include disciplines on export taxes in the EPAs have been one of the more contentious issues throughout the negotiations.

The extraction of mineral resources is largely dominated by large-scale, capital-intensive investments. Foreign investments in extractive sectors in Africa have generally generated few development benefits. The EU views ‘restrictive’ investment rules as distortions of trade in raw materials. The EU has been pushing for comprehensive investment liberalization in the EPAs – a position which has been strongly opposed by African countries.

An investment agreement in EPAs would severely limit African countries’ abilities to regulate foreign investments and ensure that the  investments actually benefit the local economy and promote development. With an investment agreement, the host country would not be able to require that the foreign investor purchases inputs locally, employs local staff or enters into joint ventures with residents and/or the government. Many African countries have certain restrictions in place on foreign investment in natural resources sectors, even if they have been forced to introduce fairly liberal investment regimes in the hope of attracting more investment. These regulations are often restrictions on foreign ownership, local participation or joint venture requirements or reserving small-scale mining for local citizens and citizen-owned companies.

In Zambia, for example, the government amended the mining legislation in 2007, with the aim to ensure more benefits to the local economy and the Zambian people. The new mining law aims at enabling individual Zambians to own shares in large-scale mining companies. In Ghana, artisanal and small-scale mining is quite important, particularly in gold mining. Small-scale mining licenses are only granted to Ghanaians. In Botswana, foreign mining companies often operate in joint ventures with the government. The government has an ownership stake of 15-50 per cent in major mining projects. Such regulations of foreign investments would be under threat if the EU succeeds in pushing through an investment agreement in the EPAs.

Sweden, together with Denmark and Finland, can show leadership and work to ensure that the EU’s raw materials policies promote development and industrialization in Africa. Africa has the right to its own natural resources and African countries must have the right to decide on the appropriate use of these resources. The EU should support African countries in their efforts to diversify their economies and break away from primary commodity dependence. The EU must recognize the right of African countries to develop industrial policies based on development objectives, instead of pushing their own agenda in the trade negotiations.

More on this subject can be read in the report booklet The raw materials race by the same author,  available for ordering here.