Modern Mining February 2025

COLUMN

Mining as a pathway out of poverty? By Dr Ross Harvey, director of research and programmes at Good Governance Africa (GGA)

Welcome to 2025! As I write this column, I am preparing to attend my 12th African Mining Indaba. The theme for 2025 is “Future-Proofing African Mining, Today!” This is built on four pillars, all worth interrogating more fully, but we’ll focus predominantly on the first: “Industrialising Africa”.

Mining needs to do better at serving its local communities.

Dr Ross Harvey, director of research and programmes at Good Governance Africa (GGA)

T his is clearly critical to realising broad-based development on the continent. Industrialisation is the most labour absorbing pathway through which to generate sustained development, as it creates a middle class. A broad middle class in turn builds a wealth base, which sustains a country into the future and helps to consolidate democracy (or even agitate for one, which is why dictators don’t like a middle class). Sovereign wealth funds can also be a useful mechanism by which to achieve this, but that requires robust governance institutions as a pre-condition to avoid the pot being looted by unaccountable politicians and officials. Unfortunately, mining prominence in any given African nation has historically not generated industrialisation. South Africa is a rare exception, and arguably only escaped this trap because the combination of diamonds, coal and gold from the late 1800s onward created a simultaneous demand for finance. This created what scholars have called a minerals-energy-finance complex (MEFC), with a relatively large and robust manufacturing sector, sustained by cheap and reliable electricity. Even South Africa, though, is likely afflicted by Dutch Disease – the phenomenon whereby a mineral-wealthy country suffers declining manufacturing performance. It works

through two complementary mechanisms: First, a mineral or oil-wealthy country’s currency appreciates through exports, undermining the cost-competitiveness of exported products in the tradables sector. Second, the extractive industries attract skills and resources away from the manufacturing sector, further jeopardising its competitiveness. For the sake of comparison, consider briefly Zambia and Rwanda. Zambia is mineral-wealthy – copper-rich to be specific. Mineral rents – the difference between the value of production for a stock of minerals at world prices and their total costs of production – have been wildly volatile for Zambia for the last fifty years. For a host of reasons, copper was unable to provide a firm foundation for manufacturing employment growth in Zambia. Employment in industry (as a share of total employment) was at 7.98% in 1991, around when copper prices plummeted. By 2000, that share had dropped to 5.75%. Mineral rents were at a tiny 0.62% of GDP at the time. By 2021, mineral rents had shot up to 28.25% of GDP, nearing the 1974 high. Manufacturing employment share, to the contrary, grew to 12.23% by 2017 but has since declined. While it is true that much of this growth occurred while mineral rents were declining, the graph shifts substantially from 2015, with mineral rents going sky-high while

34  MODERN MINING  www.modernminingmagazine.co.za | February 2025